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
Modigliani and Miller at the IMF
In a paper on tax policy, leverage and macroeconomic stability published on 10 November, the IMF staff address the issue of excessive leverage or the so-called “debt bias” that poses risks for financial and macroeconomic stability. The “debt bias” has been largely created by more favorable tax treatment of debt relatively to equity. In most ... Read more
What Could Explain the Recent Collapse of the Ruble?
The popular story has it that the recent woes of the Russian ruble can be explained by a mix of decreasing oil prices and sanctions imposed by the West as a result of Russia’s aggression in Ukraine. This appeared to hold until November. Various sanctions have been in force for some months now and until ... 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
ECB Measures to Boost Bond Performance, Not Growth
Growth is still low … Yet to recover from the 2008-crisis, the global economy faces below-potential growth prospects. Until the developed world pays down sovereign and corporate debt, deleveraging and unemployment will constrain the recovery. Frail consumer confidence, sluggish demand and the ensuing drop in consumption in advanced economies will not be offset by final ... 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
The Sanctions Against Russia Do Bite: But Are They Having Their Intended Impact?
Often, the problem with many policy actions employed to influence the economy is their unintended consequences. In the case of economic sanctions, it is not always easy to tell whether half a success is any better than a failure. On March 21, 2014, under the new sanctions regime, both Visa and MasterCard froze the card ... Read more
China’s Shadow Banking System
Chinese debt concerns are complicated by two structural issues – the rise in borrowing by local governments and the increase in the role of the shadow banking system. Both sectors are testament to Chinese entrepreneurial spirit, but also point to deep problems in China’s financial system. Local But National… Outside of security matters or foreign ... 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
BIS: Daily FX Turnover Averages $5.3 Trillion
The Economist drew from the latest survey of the Bank of International Settlements to create this Great Graphic that shows the average daily turnover of the top 16 currencies. Source: The Economist Average daily turnover is a mind-numbing $5.3 trillion. In three days foreign exchange turnover is sufficient to cover world trade in a year. The BIS conducts the survey ... Read more