World Bank Explained: Mission, Impact, and Key Operations
Picture a world where countries struggle for financial assistance, leading them to poverty, unemployment, development challenges, and inequality. Can you imagine such a condition where people are even deprived of necessities? This is how our world will look like if the World Bank does not exist. Yes, what you heard is right. World Bank is ... Read more
France Has Hissy Fit Over BNP Paribas Fine and Dollar Dominance
France appears to have taken its public relations strategy for dealing with $8.9 billion fine against BNP Paribas from an old saying among lawyers: “If you have the facts on your side, pound the facts. If you have the law on your side, pound the law. If you have neither on your side, pound the ... Read more
Larry Summers’ Contradictory and Dishonest Defense of Administration’s Bank-Focused Crisis Response
If you are going to succeed in rewriting history, a necessary condition is that the public doesn’t remember it very well. Unfortunately, that requirement is not in place for the architects of the Administration’s blatantly bank-friendly crisis responses.Timothy Geithner’s book Stress Test, in which he tries selling the idea that rescuing the banks was unsavory ... Read more
French Banks Play Russian Roulette
In the fourth quarter of last year, with tensions rising between Russia and the West over Ukraine, U.S., German, UK, and Swedish banks aggressively dialed down their credit exposures in Russia. But as the graphic above shows, French banks, which have by far the highest exposures to Russia, barely touched theirs. At $50 billion, this ... Read more
Revisiting Banking Union in a Single Currency Area (Part 2)
The current banking union framework remains far from ideal if the currency union dimension is taken into account. While decisions so far have been focusing on the moral hazard of banks, these measures fail to solve an additional market failure in the Euro area caused by the moral hazard of governments competing on funding costs, ... Read more
Evidence of Hampered Monetary Policy Transmission Channel in the Euro Area
Mario Draghi cautioned on the ‘hampered’ transmission channel of monetary policy in his now famous London speech last week: To the extent that the size of these sovereign premia hampers the functioning of the monetary policy transmission channel, they come within our mandate. I referred to the clogging of rates policy back in April via ... Read more
Core Euro Area Banks Still Very Exposed to Contagion from a Greek Exit
Today Megan Greene (@economistmeg) wrote a rather insightful post linking this weekend’s German proposal to Greece’s eventual exit from the EMU – the leaked proposal is to (1) make Greek debt service a top priority, and (2) for Greece to rescind national fiscal sovereignty to the European level (links included in her post). At the ... Read more
The ECB Is Plugging Holes
Today the ECB released its monthly data on monetary developments in the Euro area (EA), as measured by M3 and its components. The market usually focuses on the marketable assets portion of M3, M3-M2, as a representation of funding access – here’s an FT Alphaville post highlighting as much. In December 2011, M3-M2 declined 0.2% ... Read more
Linking Sovereign Risk to Corporate Credit Spreads in Europe
Financial firms in Europe and the US are hitting crisis mode, as illustrated by relative borrowing costs, spreads, to comparable government bonds (see financial spreads chart to left and click to enlarge). World policy leaders anxiously await – and some promise to deliver – a solution to the euro area sovereign debt crisis at the ... Read more