Central Banks

Central bank largesse is mixed bag for EU lenders

13 Mar 2020

Christine Lagarde and Mark Carney are giving banks free money and capital relief to fight a virus-induced slump. Investors will see few benefits, though. Higher dividends are taboo, and cheap funds will finance lower-cost loans. Balance sheets have become a social safety net.

Financial mayhem needn’t become pandemic

12 Mar 2020

The Fed opened the taps on $1.5 trln of liquidity to smooth Treasury trading. Stocks tumbled again as companies like Boeing drew on debt. And policy gaffes from Washington and Frankfurt don’t help. But there’s no reason, yet, for the health crisis to create a financial one.

ECB’s stealth easing enlists banks in virus fight

12 Mar 2020

President Christine Lagarde left interest rates unchanged but used other tricks to support the euro zone economy through Covid-19. Lenders can borrow at sub-zero rates and dip into capital and cash buffers. They have every incentive to help her limit the damage from the slowdown.

Three things the EU can do to cushion virus blow

12 Mar 2020

The 27-nation bloc lacks central spending power to fight the economic shock caused by the health crisis. But it’s not powerless. Relaxing fiscal rules and restrictions on state aid would give states freedom for more emergency measures. Looser bank regulation is another quick win.

Turkey’s Erdogan faces new economic policy nemesis

12 Mar 2020

Former minister Ali Babacan has launched a party. There’s no election until 2023 but a conflict with Russia and market turmoil could derail Ankara’s economic plans. Cogent alternatives to President Tayyip Erdogan’s counterproductive policies will begin to win over voters.

Mark Carney’s joined-up thinking does what it can

11 Mar 2020

The outgoing Bank of England boss unexpectedly eased policy with measures that used most of his armoury. It came just before finance minister Rishi Sunak unveils steps to help the economy deal with virus disruptions. Euro zone policymakers struggle to act with such unity.

Japan is stuck with curse of safe-haven yen

11 Mar 2020

Anxious investors have flocked to the currency, fuelling a rally that could hammer exporters. Tokyo will struggle to persuade other major industrial nations the yen is overvalued, so won’t win their help to curb the move. Solo action won’t work. Only calmer markets can help.

Oil shock gives central banks excuse to be bold

9 Mar 2020

Crude prices plunged days before the ECB meets. While Christine Lagarde and her global peers are supposed to look beyond one-off jolts, inflation expectations have been crushed in a market already gripped by virus fears. That gives rate-setters another reason to be decisive.

India’s Yes Bank rescue plan is a messy experiment

9 Mar 2020

State Bank of India could inject up to $1.4 bln and own 49% of the collapsed lender in a two-step process. That would keep Yes out of government control, but private investors might be wary of a public partnership. Such contortions also won’t necessarily shore up confidence.

Viewsroom: Fear factor

5 Mar 2020

U.S. Fed Chairman Jerome Powell surprised markets with a rate cut ahead of schedule. Democratic presidential contender Joe Biden unexpectedly won the most states on Super Tuesday. Covid-19 may show up in China M&A clauses. The coronavirus is inspiring flights to safety.

Fed playbook will need a new page on zero rates

5 Mar 2020

Chair Jay Powell is likely to follow up this week’s emergency rate cut with more. It’s a case of when, not if, the U.S. central bank will revisit 0%. There are tactics it can try before going negative like euro zone and Japanese peers. The problem, though, is diminishing returns.

Fed easing shocks more than it awes

3 Mar 2020

U.S. central bank boss Jay Powell cut rates by half a percentage point because of economic risks from the coronavirus. Easing from the provider of global financial liquidity sets the scene for others to follow. The impact would have been bigger had G7 peers acted simultaneously.

Covid-19 monetary placebos start Down Under

3 Mar 2020

Australia’s central bank cut rates to a record low 0.5%, becoming the first in the developed world to trim post-outbreak. Others are expected to follow in some coordinated fashion. Any effects will be marginal or misplaced. Governments are better placed to deliver support.

Virus will finally force politicians to spend

27 Feb 2020

Central bankers don’t have the tools to combat the economic damage. Rather than relying on them again, governments will have to raid their coffers to safeguard public health and prop up growth. That will do short-term good, but could further distract from long-standing problems.

Bank of England’s AI approach will toughen up

21 Feb 2020

UK finance has yet to face many restrictions on using artificial intelligence. But the technology brings risks as well as opportunities, the BoE’s fintech director told Breakingviews. A light-touch approach will change as machines make increasingly important financial decisions.

Mark Carney’s green push needs disclosure stick

14 Feb 2020

The outgoing Bank of England boss wants firms to say how they’ll cut carbon emissions. Ideally, he would use his new role as U.N. climate finance envoy to make such disclosure mandatory after November’s UK climate summit. But there’s only so much political capital to go round.

Trump’s could-be-worse Fed pick could get worse

13 Feb 2020

Judy Shelton said many of the right things in her Senate hearing, defending central bank independence and downplaying earlier fringe views. Her White House ties would be manageable as just one of several board members. That changes if chair Jay Powell’s role comes up for grabs.

Onus is on banks to get rid of Libor

6 Feb 2020

UK lenders are linking most new sterling loans to the old interest rate benchmark despite a September 2020 deadline to switch to its successor. But the transition will speed up now that IT systems are finally ready. Regulatory pressure leaves Barclays, HSBC and Lloyds no choice.

Fed’s failure to communicate overshadows QE debate

30 Jan 2020

The U.S. central bank has been gobbling up about $60 billion in treasury bills a month since October. Whether this is technically quantitative easing is less important than the Fed’s struggle to control its message. This could undermine its effectiveness when it’s needed most.

Carney’s BoE legacy is bigger than monetary policy

30 Jan 2020

Outgoing Bank of England boss Mark Carney has ably navigated choppy economic and political waters since 2013. Early attempts to use rhetoric to steer markets went awry, but his big success was shining an early light on the risks that climate change poses to the financial sector.