Saturday 18th April 2015
NEWS TICKER FRIDAY APRIL 17TH 2015: -On June 9, 2015, the Federal Trade Commission will host a workshop to examine competition, consumer protection, and economic issues raised by the proliferation of online and mobile peer-to peer business platforms in certain sectors of the economy, often referred to as the “sharing economy.” The workshop will take place in Washington, D.C., at the FTC’s Constitution Center conference space. Peer-to-peer platforms, which enable suppliers and consumers to connect and do business, have led to the emergence of new business models in industries that have been subject to regulation. The FTC’s sharing economy workshop will explore how regulatory frameworks can accommodate new sharing economy business models while maintaining appropriate consumer protections and a competitive marketplace. “We are seeing a dramatic growth in products and services that are built on peer-to-peer platforms, such as ride-sharing and property rentals, as more entrepreneurs harness the power of technology to reach more consumers,” says FTC Chairwoman Edith Ramirez. “The resulting business models have great potential to benefit our economy and consumers. Through our workshop, we want to better understand the competitive impact of these new business models, as well as their interactions with existing regulatory frameworks.” - he Straits Times Index (STI) ended 6.42 points or 0.18% lower to 3525.19, taking the year-to-date performance to +4.76%. The top active stocks today were Keppel Corp, which declined 2.01%, DBS, which gained 0.91%, SingTel, which gained 0.23%, UOB, which gained 0.38% and ComfortDelGro, with a 1.70% advance. The FTSE ST Mid Cap Index fell 0.30%, while the FTSE ST Small Cap Index rose 0.06%. The outperforming sectors today were represented by the FTSE ST Utilities Index, which rose 1.60%. The two biggest stocks of the Index - United Envirotech and Hyflux – ended 5.12% higher and 2.09% lower respectively. The underperforming sector was the FTSE ST Basic Materials Index, which slipped 1.82%. Midas Holdings shares declined 2.56% and Geo Energy Resources remained unchanged - It has been a testing day in the markets, with most stock markets reporting substantial losses. The spectre of another crisis in Greece as the IMF talked tough on the country adhering to its repayment schedule, a terminal outage at Bloomberg and a clampdown on OTC and short selling in China combined to test investor sentiment. The FTSE 100, fell briefly below 7000 to end up finding support at 7007; however Spain's Ibex and Italy's FTSE MIB were both 2% down while the German DAX 30 slid 1.8% and France's CAC 40 fell 1.2% - The outage impacted the UK DMO’s offer of £300m 1 month bill, due 18-May-2015(ISIN GB00BDNKWT09); the £1,000m 3-months bill due 20-Jul-2015 (ISIN GB00BDNLZ833), and the £1,500m 6-months bill due 19-Oct-2015 (ISIN GB00BDNNDG38) was conducted between midday and14.30 today. Any bids submitted in the aborted operation earlier this morning were deemed null and void - Catastrophe bond issuance is forecast to have risen almost 30% so far this year, though the size of the market remains modest. The increase in demand for cat bonds means that some bonds are now trading at a discount to their original issue price for the first time in years. Issuance for the year through to mid-April is predicted to be up 27% on 2014, at around $2.1bn, The full-year trend also looks positive, following on from a record cat bond issuance of $8.4bn in 2014 - Moody's Investors Service has described in detail the approach it takes to allocating expected credit losses across the various classes of debt issued by banks in the US, the EU and Switzerland. The liability hierarchy or "waterfall" that Moody's employs to allocate estimated losses to debt classes in these three jurisdictions incorporates the implications of key structural differences in their bank resolution and bail-in frameworks. In this way, the liability hierarchy aims to capture the prioritisation authorities will give different debt classes when apportioning losses to creditors in the event of a bank's failure. The construction of a given bank's liability structure at failure serves as the starting point of Moody's Loss Given Failure (LGF) analysis, instituted as part of its new bank rating methodology. The LGF framework is used to assess and differentiate creditor risk across banks' liability structures, as detailed in Moody's report "How Resolution Frameworks Drive Our Creditor Hierarchies." The bank resolution and bail-in frameworks in the US, EU, and Switzerland all aim to limit the use of public funds in bank resolutions while mitigating risks to financial stability. Important differences in these frameworks include the degree of power authorities have to write down or convert capital instruments, differences in depositor preference, and variations in the obligations of holding companies to their operating companies - Close Brothers has reportedly acquired advisory firm Mackay Stewart & Brown for an undisclosed amount. Andy Cumming, head of advice at Close Brothers Asset Management, said the acquisition would strengthen the national advice firm’s Scottish operation.

Blog

The European Review

By Patrick Artus, chief economist at Natixis

Target 2 accounts: The equivalent of currency interventions, and a very good indicator of the risk that the euro may break up

Wednesday, 20 June 2012 Written by 
Target 2 accounts: The equivalent of currency interventions, and a very good indicator of the risk that the euro may break up When the Bundesbank’s (Germany's) Target 2 account (which is positive) increases while another euro-zone country’s Target 2 account becomes more negative, this is equivalent to a German currency intervention aimed at stabilising the exchange rate between Germany and this other country, and therefore at preventing a break-up of the euro. In a completely similar manner, when China accumulates foreign exchange reserves in dollars to prevent an appreciation of the RMB, the People's Bank of China accumulates an asset and the United States a liability, and there is monetary creation (in RMB). So the size of the Target 2 accounts of the national central banks in the euro zone corresponds to the size of the foreign exchange reserves that the euro-zone countries with a strong currency have to accumulate to prevent a break-up of the euro; it is therefore a very good indicator of the risk of a break-up. http://www.ftseglobalmarkets.com/

When the Bundesbank’s (Germany's) Target 2 account (which is positive) increases while another euro-zone country’s Target 2 account becomes more negative, this is equivalent to a German currency intervention aimed at stabilising the exchange rate between Germany and this other country, and therefore at preventing a break-up of the euro. In a completely similar manner, when China accumulates foreign exchange reserves in dollars to prevent an appreciation of the RMB, the People's Bank of China accumulates an asset and the United States a liability, and there is monetary creation (in RMB). So the size of the Target 2 accounts of the national central banks in the euro zone corresponds to the size of the foreign exchange reserves that the euro-zone countries with a "strong currency" have to accumulate to prevent a break-up of the euro; it is therefore a very good indicator of the risk of a break-up.

The size of the Target 2 accounts held by national central banks in the euro zone

Germany and the Netherlands hold substantial Target 2 assets (respectively EUR 650bn and EUR 140bn), while Greece, Spain, Italy and Ireland have substantial Target 2 debts (respectively EUR 98bn, EUR 285bn, EUR 280bn and EUR 117bn).



Fundamentally, these are currency interventions

Let us take, for example, the Germany/Spain pair. If the Bundesbank lends to the Bank of Spain, there is an increase in Germany's positive Target 2 account and in Spain’s negative Target 2 account. This corresponds to a loan from Germany to Spain, or to a purchase of Spanish assets by the German central bank.

If this purchase had not taken place, Spain would be unable to finance its external deficit, and would be forced to pull out of the euro and let its currency depreciate to the point where capital inflows covered its external borrowing requirement.

Therefore, this is the exact equivalent of a currency intervention aimed at ensuring the stability of the exchange rate between Germany and Spain: the country with a "strong currency" buys assets of the country with a "weak currency" to stabilise the exchange rate.

Similarity with the China/United States pair

When China accumulates foreign exchange reserves in dollars to prevent an excessive appreciation of the RMB against the dollar, the People's Bank of China holds US assets and the United States, conversely, has a debt to China.

This operation increases the size of the balance sheet of the People's Bank of China, and therefore leads to monetary creation.

Likewise, when the Bundesbank lends to central banks in the Southern euro-zone countries, and these central banks subsequently lend these funds to the banks in their own countries, there is a creation of monetary base in euros.

Target 2 accounts measure the risk of a break-up of the euro

The size (positive or negative according to the country) of the Target 2 accounts held by the central banks in the euro zone therefore represents the size of the foreign exchange reserves that the euro zone countries with a "strong currency" have to accumulate to ensure the euro’s sustainability ("exchange-rate stability" between euro zone countries). The more the size of these accounts increases, the higher the risk that the euro may break-up.

Positive Target 2 accounts surged from the summer of 2011, and this went hand in hand with a period of pressure on the interest rates on peripheral government bonds and on risk premia on banks.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

Related News

Related Articles

Related Blogs

Current IssueSpecial Report

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP