Discussion on balancing risk sensitivity, simplicity and comparability within the Basel capital standards initiated by the Basel Committee
July 8, 2013
http://www.bis.org/press/p130708.htm
The Basel Committee on Banking Supervision today released a Discussion Paper on the balance between risk sensitivity, simplicity and comparability within the Basel capital standards.
In response to the financial crisis, the Basel Committee introduced a
range of reforms designed to substantially raise the resilience of the
banking system against shocks. In addition to these reforms, during 2012
the Committee commissioned a small group of its members (the Task Force
on Simplicity and Comparability) to undertake a review of the Basel
capital framework. The goal of the Task Force was to identify
opportunities to remove undue complexity within the framework, and
improve the comparability of its outcomes. The creation of the Task
Force acknowledged that the framework has steadily grown over time as
risk coverage has been expanded and more sophisticated risk measurement
methodologies have been introduced.
The paper being released today discusses the reasons behind the
evolution of the current framework, and outlines the potential benefits
and costs that arise from a more risk sensitive methodology. The paper
also discusses ideas that could possibly be explored to further reform
the framework with the objective that it continues to strike an
appropriate balance between the complementary goals of risk sensitivity,
simplicity and comparability.
The purpose of the discussion paper is to seek views on this
critical issue so as to help shape the Committee's thinking. At this
stage, the Committee has not made a decision to pursue any of the ideas
presented; the paper is being published to elicit comments and feedback
from interested stakeholders, which will help the Committee refine its
thinking in this area. Furthermore, the Committee remains firmly of the
view that full, timely and consistent implementation of Basel III
remains fundamental to building a resilient financial system,
maintaining public confidence in regulatory ratios and providing a level
playing field for internationally active banks. Adopting the Basel III
reforms (higher and better quality capital, improved risk coverage,
capital buffers, and liquidity and funding requirements) in accordance
with the internationally-agreed transition period deadlines is itself an
important step in improving the consistency of bank regulation
globally.
Mr Stefan Ingves, Chairman of the Basel Committee and Governor,
Sveriges Riksbank said: "The Committee is keenly aware of the current
debate concerning the complexity of the current regulatory framework.
For that reason, the Committee set up a Task Force last year to look at
this issue in some depth. The Committee believes that it would benefit
from further input on this critical issue before deciding on the merits
of any specific changes to the current framework. The paper being
released today is designed to encourage discussion amongst, and solicit
views from, a broad set of stakeholders."
The Committee welcomes views on the issues outlined in this paper. Comments should be submitted by Friday 11 October 2013 by e-mail to baselcommittee@bis.org.
Alternatively, comments may be sent by post to: Secretariat of the
Basel Committee on Banking Supervision, Bank for International
Settlements, CH-4002 Basel, Switzerland. All comments may be published
on the website of the Bank for International Settlements unless a
respondent explicitly requests confidential treatment.
Monday, July 8, 2013
Sunday, July 7, 2013
Lord Morris of Borth-y-Gest Memorial Lecture. By Michael Howard, MP. July 6, 2006
Lord Morris of Borth-y-Gest Memorial Lecture. By Michael Howard, MP
http://web.archive.org/web/20070505062753/http://www.michaelhowardmp.com/speeches/lampeter060706.htm
July 6, 2006
It is a great privilege to have been invited to give this lecture.
Lord Morris of Borth-y-Gest – or John Willie as I recall him being almost universally referred to – was one of the giants of the law when I studied it at Cambridge and during the years when I was making my way as a Junior Member of the Bar.
Superficially we had quite a few things in common. We were, of course, both Welsh. We were both members of the Inner Temple. We had both been Presidents of the Cambridge Union. And we both, and this may be particularly encouraging to some, took second-class degrees in law.
But there, I fear, the similarities come to an end. I could not hope, even to begin to match the distinction of John Willie’s attainments at the Bar, on the Bench and as one of our great appeal judges. Nor, let’s be frank about this, could I aspire to his hallmarks of gentleness, patience and universal popularity.
He was a legend in the land. And not just, of course, for what he achieved in his legal career. At the outbreak of war in 1914, at the age of 17 he joined the Royal Welsh Fusiliers, saw service in France, reached the rank of Captain and was awarded the Military Cross. And it is said that, after being appointed a Law Lord in 1960 he walked down Whitehall to the House of Lords every day, lifting his hat as he passed the cenotaph.
Sadly I never had the honour of appearing before him. But I did meet him. When I was an undergraduate at Cambridge he came to see us to encourage us to go to the Bar.
I cannot pretend that this was a decisive influence on my own career because I had already made up my mind that that was what I wanted to do. So none of the blame for my subsequent career can be laid at John Willie’s door.
The Dictionary of National Biography, in describing his judicial characteristics, says that he was 'vigilant in protecting the freedom of the individual when threatened by the executive' and adds that 'he exhibited judicial valour consistently and in full measure.'
These statements are justified. But they must be interpreted in the spirit and context of their time. Thirty years ago judges were also conscious of the constraints which were imposed on their role.
Since then, that role has been greatly expanded, first as a consequence of the enlargement of judicial review, more recently as a result of the Human Rights Act. It is to that trend, its implications and its consequences that I intend to devote the rest of my remarks this evening.
Over thirty years ago, on a visit to Philadelphia, I fell into conversation with a woman who had recently been given a parking ticket. She had been incensed, so incensed that she decided to go to Court to challenge it.
When she appeared in Court she was rather surprised when the magistrate called all the defendants who were due to appear that day to the bar of the Court. He told them his name and asked them to remember it. Then he said, “All cases dismissed.”
The astonishment of my acquaintance at this development was tempered somewhat when she discovered that a few days later the regular election of magistrates in the city was due to take place. The magistrate before whom she had appeared, albeit rather briefly, was re-elected with the biggest majority in the history of the Philadelphia magistracy.
When I was told that story I reacted, I am sorry to say, with a rather superior disdain. “What can you expect” I asked, “if you elect magistrates and judges? We in Britain would never contemplate any such step.”
Thirty years on I am much less sure. The truth is that during that time the power of judges in this country was increased, is increasing and will increase further, if nothing is done to change things.
For the most part this increase in power has been at the expense of elected Governments and elected Parliaments. Our judges, of course, are unelected. They are unaccountable. They cannot be dismissed, save in the most extreme circumstances, and in practice never are.
Moreover they are appointed without regard to their political background and views are without any public scrutiny, parliamentary or otherwise. I believe that this has, in the past, been one of the great strengths of our judiciary. But as they move, increasingly, to the centre of the political stage how long can this state of affairs continue?
It would be wrong to suggest that this shift in power is entirely new or that it is entirely due to the coming into force of the Human Rights Act.
The Courts have traditionally had the power to curb the illegal, arbitrary or irrational exercise of power by the Executive. But, traditionally this power was exercised with restraint.
The Courts would be careful not to quash decisions because they disagreed on the merits with the decisions under challenge.
There is common consent that during the last 50 years this restraint has been eroded. As the previous Lord Chancellor, Lord Irvine put it, in his 1995 Address to the Administrative Law Bar Association:
“The range of circumstances in which decisions may be struck down has been extended beyond recognition.”
That address was essentially a plea for judicial restraint. Indeed in it the future Lord Chancellor referred to what he described as the “constitutional imperative of judicial self-restraint.”
He gave three reasons for it. First he referred to the constitutional imperative – the fact that Parliament gives powers to various authorities, including Ministers, for good reasons and in reliance on the level of knowledge and experience which such authorities possess. Secondly, he referred to the lack of judicial expertise which, he said, made the Courts ill-equipped to take decisions in place of the designated authority. Thirdly, and most pertinently, he referred to what he called the democratic imperative – the fact that elected public authorities derive their authority in part from their electoral mandate.
It is worth quoting his words in full: “The electoral system,” he said, “also operates as an important safeguard against the unreasonable exercise of public powers, since elected authorities have to submit themselves, and their decision-making records, to the verdict of the electorate at regular intervals.”
With respect to Lord Irvine, I couldn’t have put it better myself.
Remarkably enough he even prayed in aid, as one of his arguments against judicial intervention, the fact that it would strengthen objections to the incorporation of the European Convention on Human Rights into our law – the very Human Rights Act which he did so much to introduce.
Rightly describing it as a step which would hugely enhance the role and significance of the judiciary in our society he said this:- “The traditional objection to incorporation has been that it would confer on unelected judges powers which naturally belong to Parliament. That objection, entertained by many across the political spectrum, can only be strengthened by fears of judicial supremacism.”
Lord Irvine was right. My essential objection to the Human Rights Act is that it does involve a very significant shift in power from elected representatives of the people to unelected judges. Members of Parliament, and Ministers are, except for Ministers in the House of Lords like the Lord Chancellor, answerable to their electorates. As I know only too well they can be summarily dismissed by the electorate. They are directly accountable. Judges, as I have already pointed out, are unelected, unaccountable and cannot be dismissed.
The reason why this difficulty arisesin such acute form as a result of the Human Rights Act is because so many of the decisions which our judges now have to make under it are, essentially, political in nature.
Just this week, Charles Clarke, the former Home Secretary, complained that, and I quote:- “One of the consequences of the Human Rights Act is that our most senior judiciary are taking decisions of deep concern to the security of our society without any responsibility for that security.”
What on earth did he expect?
Of course that is one of the consequences of the Human Rights Act. It is an inevitable consequence. It is what the Human Rights Act obliges the senior judiciary to do. It is not the fault of the judges if they perform, as conscientiously as they can, duties which the Government has placed on them.
And it is not as though the Government were not warned.
To select a quote almost at random Appeal Court Judge Sir Henry Brooke predicted that judges would be drawn into making “much more obviously political decisions.” He pointed out that under the Act “for the first time judges would have to decide whether government interference with a human right was 'necessary in a democratic society.’ – and that, of course, is clearly a political value judgement.
How does this arise? In a nutshell the Act requires our courts to apply the European Convention on Human Rights in every decision they make. The rights which the Convention seeks to protect are framed in very wide terms. The Convention was drawn up in the aftermath of the Second World War. Its authors saw it as a safeguard against any revival of Nazism or any other form of totalitarian tyranny. I suspect that many of them would turn in their graves if they were able to see the kind of cases which are being brought in reliance on it today.
None of these rights can be exercised in isolation. Any decision to uphold one right may well infringe someone else’s right. Or it may conflict with the rights of the community at large.
The example that has most recently hit the headlines well illustrates the difficulties that arise.
As David Cameron pointed out in his recent speech on this subject life in the globalised twenty first century world presents two great challenges to governments. The first is to protect our security. The second is protecting our liberty.
We would, I suspect, all agree with his view that 'it is vital that free societies do all they can to maintain people’s human rights and civil liberties, not least because a free society is, in the long term, one of the best protections against terrorism and crime.”
As he said, “The fundamental challenge is to strike the right balance between security and liberty.”
The fundamental question is who is ultimately responsible for striking that balance: elected members of Parliament or unelected judges?
In the cases on terrorism, Parliament twice, after much anxious consideration by both Houses, reached its view. It was not always a view with which I agreed. But it was the view of Parliament.
Yet twice the Judges have held that Parliament got the balance wrong. They thought the balance should be struck differently.
And in doing so they were not deliberately seeking to challenge the supremacy of Parliament. They were simply doing what Parliament has asked them to do.
There are countless other examples. In his recent speech on the subject David Cameron discussed the way in which the Human Rights Act has made the fight against crime harder.
He cited the example of the Assets Recovery Agency, which was set up to seize the assets of major criminals.
The agency has been forced to spend millions of pounds fighting legal challenges brought by criminals under the Human Rights Act.
This has had bogged down cases for years, and the backlog in the courts has grown to 146 uncompleted claims.
The Director of the Agency has directly blamed the human rights “bandwagon” for thwarting its efforts.
He referred to the case of the convicted rapist, Anthony Rice, who was wrongly released on licence and then murdered Naomi Bryant.
The bridges Report set up to investigate the case makes clear that one of the factors that influenced the thinking of officials in dealing with Rice was a concern that he might sue them under the Human Rights Act.
As David Cameron acknowledged there were other elements in the case that had no connection to human rights.
And it is true that any legal challenge by Rice might well have failed.
But it remains the case that officials sought to protect themselves rather than risk defeat in the courts.
The Rice case illustrates a wider trend.
Even without actual litigation, some public bodies are now so frightened of being sued under the Human Rights Act that they try to protect themselves by making decisions that are often absurd and occasionally dangerous.
We saw this recently when the police tried to recapture foreign ex-prisoners who should have been deported and had instead gone on the run.
The obvious thing to do would have been to issue “Wanted” posters but police forces across the country refused to do so on the grounds that it would breach the HRA.
The Association of Chief Police officers says in its guidance to forces: “Article 8 of the Human Rights Act gives everyone the right to respect for their private and family life.....and publication of photographs could be a breach of that.”
According to ACPO, photographs should be released only in “exceptional circumstances”, where public safety needs to override the case for privacy.
These were criminals who had been convicted of very serious offences and who shouldn’t even have been in the UK.
Yet the Metropolitan Police said, “We will use all the tools in our tool box to try and find them without printing their identity – that’s the last recourse.”
Perhaps the most ludicrous recent example occurred a few weeks ago when a suspected car thief clambered onto the roof tops after a high speed chase and began pelting the police who had tried to follow him with roof tiles.
It ended with a siege that would waste the time of 50 police officers, close the street until 9.40pm and culminate in the spectacle of the suspect being handed a bucket of KFC chicken, a two litre bottle of Pepsi and a packet of cigarettes at tax payers expense – all apparently to preserve his “human rights.”
Of course there are examples of cases where the Act has led to results most of us would applaud. But we have to ask whether those results could not have been achieved by effective lobbying of our elected Parliament or a change of Government following an Election.
The Human Rights Act requires the Courts to interpret legislation so that it complies with the Convention if that is at all possible. If in the Court’s view any secondary legislation – passed after due consideration by both Houses of Parliament – is incompatible with the Convention that legislation can be struck down by the Court.
If any primary legislation is held to be incompatible there is a fast-track procedure which would enable the Government to short-circuit the normal processes of parliamentary scrutiny in order to amend or repeal any such legislation.
This surely a direct threat to the very democratic imperative on which the then Lord Chancellor waxed so eloquent 5 years ago.
One of the consequences of this is likely to be the increasing politicisation of judges.
How long, if the Act remains in force, will our present system of selection of judges survive? How long before the political backgrounds of candidates for judicial office become subject to Parliamentary scrutiny? How long before we see demands that these judges submit themselves for election?
The most common argument in favour of the Act is that it 'brings rights home.’ By that its supporters mean that since the Act could in any event be relied upon in an appeal from the English Courts to the European Court of Human Rights it is much better to allow English judges to apply it themselves. Indeed in presenting this argument the impression is sometimes given that the new jurisdiction of the English Courts will in some way replace the jurisdiction of the European Court of Human Rights. This is of course quite untrue. The right to appeal to the ECHR will remain.
I would concede that the previous situation was not ideal.
The ECHR does sometimes reach decisions which are very difficult to understand and sometimes cause considerable frustration.
But there is a remedy for this which the last Government was pursuing. The ECHR recognises the existence of what it calls a 'margin of appreciation.’ By that it means that will make some allowance, in applying the Convention, for the local circumstances and traditions of the country from which the appeal is brought. The last Government had embarked on a campaign to increase this margin of appreciation so that the Court would give greater leeway to countries to decide things for themselves.
Now the very future of the margin of appreciation is uncertain. Academic controversy rages on to whether our courts will apply it. And the ECHR is much less likely to apply it to decisions of our Courts than to decisions of administrative bodies.
It is in this context that David Cameron’s proposal for a British Bill of Rights should be considered.
As Mr Cameron expressly said the existence of a clear and codified British Bill of Rights will tend to lead the European Court of Human Rights to apply, and I would add to enhance, the “margin of appreciation.”
This seems to me to be the key to the continuing application and acceptance of the European Convention. It was intended to be a backstop to ensure that there was no repetition in Western European of Nazi atrocities and to minimise, as far as possible, the danger of future totalitarian outrages. It was not intended to strike down carefully considered judgements by democratically elected authorities of where the balance should be struck between legitimate but competing interests.
The route to this more limited role for the Convention and the Court which adjudicates on it lies through an enhanced margin of appreciation. A British Bill of Rights may well help us to reach this very desirable destination.
It is of course true, as Mr Cameron himself acknowledged, that the drafting of such a Bill would represent a formidable challenge. But this is true of all charters of this kind. If it helps us to achieve a workable solution to our relationship with the European Convention the effort will be well worth while.
And if it also enables us to scrap the discredited Human Rights Act it would be doubly welcome.
As the distinguished Scottish judge, Lord McCluskey predicted, the Act has become:- “A field day for crackpots, a pain in the neck for judges and a goldmine for lawyers.”
It is an experiment that has failed. It should go.
http://web.archive.org/web/20070505062753/http://www.michaelhowardmp.com/speeches/lampeter060706.htm
July 6, 2006
It is a great privilege to have been invited to give this lecture.
Lord Morris of Borth-y-Gest – or John Willie as I recall him being almost universally referred to – was one of the giants of the law when I studied it at Cambridge and during the years when I was making my way as a Junior Member of the Bar.
Superficially we had quite a few things in common. We were, of course, both Welsh. We were both members of the Inner Temple. We had both been Presidents of the Cambridge Union. And we both, and this may be particularly encouraging to some, took second-class degrees in law.
But there, I fear, the similarities come to an end. I could not hope, even to begin to match the distinction of John Willie’s attainments at the Bar, on the Bench and as one of our great appeal judges. Nor, let’s be frank about this, could I aspire to his hallmarks of gentleness, patience and universal popularity.
He was a legend in the land. And not just, of course, for what he achieved in his legal career. At the outbreak of war in 1914, at the age of 17 he joined the Royal Welsh Fusiliers, saw service in France, reached the rank of Captain and was awarded the Military Cross. And it is said that, after being appointed a Law Lord in 1960 he walked down Whitehall to the House of Lords every day, lifting his hat as he passed the cenotaph.
Sadly I never had the honour of appearing before him. But I did meet him. When I was an undergraduate at Cambridge he came to see us to encourage us to go to the Bar.
I cannot pretend that this was a decisive influence on my own career because I had already made up my mind that that was what I wanted to do. So none of the blame for my subsequent career can be laid at John Willie’s door.
The Dictionary of National Biography, in describing his judicial characteristics, says that he was 'vigilant in protecting the freedom of the individual when threatened by the executive' and adds that 'he exhibited judicial valour consistently and in full measure.'
These statements are justified. But they must be interpreted in the spirit and context of their time. Thirty years ago judges were also conscious of the constraints which were imposed on their role.
Since then, that role has been greatly expanded, first as a consequence of the enlargement of judicial review, more recently as a result of the Human Rights Act. It is to that trend, its implications and its consequences that I intend to devote the rest of my remarks this evening.
Over thirty years ago, on a visit to Philadelphia, I fell into conversation with a woman who had recently been given a parking ticket. She had been incensed, so incensed that she decided to go to Court to challenge it.
When she appeared in Court she was rather surprised when the magistrate called all the defendants who were due to appear that day to the bar of the Court. He told them his name and asked them to remember it. Then he said, “All cases dismissed.”
The astonishment of my acquaintance at this development was tempered somewhat when she discovered that a few days later the regular election of magistrates in the city was due to take place. The magistrate before whom she had appeared, albeit rather briefly, was re-elected with the biggest majority in the history of the Philadelphia magistracy.
When I was told that story I reacted, I am sorry to say, with a rather superior disdain. “What can you expect” I asked, “if you elect magistrates and judges? We in Britain would never contemplate any such step.”
Thirty years on I am much less sure. The truth is that during that time the power of judges in this country was increased, is increasing and will increase further, if nothing is done to change things.
For the most part this increase in power has been at the expense of elected Governments and elected Parliaments. Our judges, of course, are unelected. They are unaccountable. They cannot be dismissed, save in the most extreme circumstances, and in practice never are.
Moreover they are appointed without regard to their political background and views are without any public scrutiny, parliamentary or otherwise. I believe that this has, in the past, been one of the great strengths of our judiciary. But as they move, increasingly, to the centre of the political stage how long can this state of affairs continue?
It would be wrong to suggest that this shift in power is entirely new or that it is entirely due to the coming into force of the Human Rights Act.
The Courts have traditionally had the power to curb the illegal, arbitrary or irrational exercise of power by the Executive. But, traditionally this power was exercised with restraint.
The Courts would be careful not to quash decisions because they disagreed on the merits with the decisions under challenge.
There is common consent that during the last 50 years this restraint has been eroded. As the previous Lord Chancellor, Lord Irvine put it, in his 1995 Address to the Administrative Law Bar Association:
“The range of circumstances in which decisions may be struck down has been extended beyond recognition.”
That address was essentially a plea for judicial restraint. Indeed in it the future Lord Chancellor referred to what he described as the “constitutional imperative of judicial self-restraint.”
He gave three reasons for it. First he referred to the constitutional imperative – the fact that Parliament gives powers to various authorities, including Ministers, for good reasons and in reliance on the level of knowledge and experience which such authorities possess. Secondly, he referred to the lack of judicial expertise which, he said, made the Courts ill-equipped to take decisions in place of the designated authority. Thirdly, and most pertinently, he referred to what he called the democratic imperative – the fact that elected public authorities derive their authority in part from their electoral mandate.
It is worth quoting his words in full: “The electoral system,” he said, “also operates as an important safeguard against the unreasonable exercise of public powers, since elected authorities have to submit themselves, and their decision-making records, to the verdict of the electorate at regular intervals.”
With respect to Lord Irvine, I couldn’t have put it better myself.
Remarkably enough he even prayed in aid, as one of his arguments against judicial intervention, the fact that it would strengthen objections to the incorporation of the European Convention on Human Rights into our law – the very Human Rights Act which he did so much to introduce.
Rightly describing it as a step which would hugely enhance the role and significance of the judiciary in our society he said this:- “The traditional objection to incorporation has been that it would confer on unelected judges powers which naturally belong to Parliament. That objection, entertained by many across the political spectrum, can only be strengthened by fears of judicial supremacism.”
Lord Irvine was right. My essential objection to the Human Rights Act is that it does involve a very significant shift in power from elected representatives of the people to unelected judges. Members of Parliament, and Ministers are, except for Ministers in the House of Lords like the Lord Chancellor, answerable to their electorates. As I know only too well they can be summarily dismissed by the electorate. They are directly accountable. Judges, as I have already pointed out, are unelected, unaccountable and cannot be dismissed.
The reason why this difficulty arisesin such acute form as a result of the Human Rights Act is because so many of the decisions which our judges now have to make under it are, essentially, political in nature.
Just this week, Charles Clarke, the former Home Secretary, complained that, and I quote:- “One of the consequences of the Human Rights Act is that our most senior judiciary are taking decisions of deep concern to the security of our society without any responsibility for that security.”
What on earth did he expect?
Of course that is one of the consequences of the Human Rights Act. It is an inevitable consequence. It is what the Human Rights Act obliges the senior judiciary to do. It is not the fault of the judges if they perform, as conscientiously as they can, duties which the Government has placed on them.
And it is not as though the Government were not warned.
To select a quote almost at random Appeal Court Judge Sir Henry Brooke predicted that judges would be drawn into making “much more obviously political decisions.” He pointed out that under the Act “for the first time judges would have to decide whether government interference with a human right was 'necessary in a democratic society.’ – and that, of course, is clearly a political value judgement.
How does this arise? In a nutshell the Act requires our courts to apply the European Convention on Human Rights in every decision they make. The rights which the Convention seeks to protect are framed in very wide terms. The Convention was drawn up in the aftermath of the Second World War. Its authors saw it as a safeguard against any revival of Nazism or any other form of totalitarian tyranny. I suspect that many of them would turn in their graves if they were able to see the kind of cases which are being brought in reliance on it today.
None of these rights can be exercised in isolation. Any decision to uphold one right may well infringe someone else’s right. Or it may conflict with the rights of the community at large.
The example that has most recently hit the headlines well illustrates the difficulties that arise.
As David Cameron pointed out in his recent speech on this subject life in the globalised twenty first century world presents two great challenges to governments. The first is to protect our security. The second is protecting our liberty.
We would, I suspect, all agree with his view that 'it is vital that free societies do all they can to maintain people’s human rights and civil liberties, not least because a free society is, in the long term, one of the best protections against terrorism and crime.”
As he said, “The fundamental challenge is to strike the right balance between security and liberty.”
The fundamental question is who is ultimately responsible for striking that balance: elected members of Parliament or unelected judges?
In the cases on terrorism, Parliament twice, after much anxious consideration by both Houses, reached its view. It was not always a view with which I agreed. But it was the view of Parliament.
Yet twice the Judges have held that Parliament got the balance wrong. They thought the balance should be struck differently.
And in doing so they were not deliberately seeking to challenge the supremacy of Parliament. They were simply doing what Parliament has asked them to do.
There are countless other examples. In his recent speech on the subject David Cameron discussed the way in which the Human Rights Act has made the fight against crime harder.
He cited the example of the Assets Recovery Agency, which was set up to seize the assets of major criminals.
The agency has been forced to spend millions of pounds fighting legal challenges brought by criminals under the Human Rights Act.
This has had bogged down cases for years, and the backlog in the courts has grown to 146 uncompleted claims.
The Director of the Agency has directly blamed the human rights “bandwagon” for thwarting its efforts.
He referred to the case of the convicted rapist, Anthony Rice, who was wrongly released on licence and then murdered Naomi Bryant.
The bridges Report set up to investigate the case makes clear that one of the factors that influenced the thinking of officials in dealing with Rice was a concern that he might sue them under the Human Rights Act.
As David Cameron acknowledged there were other elements in the case that had no connection to human rights.
And it is true that any legal challenge by Rice might well have failed.
But it remains the case that officials sought to protect themselves rather than risk defeat in the courts.
The Rice case illustrates a wider trend.
Even without actual litigation, some public bodies are now so frightened of being sued under the Human Rights Act that they try to protect themselves by making decisions that are often absurd and occasionally dangerous.
We saw this recently when the police tried to recapture foreign ex-prisoners who should have been deported and had instead gone on the run.
The obvious thing to do would have been to issue “Wanted” posters but police forces across the country refused to do so on the grounds that it would breach the HRA.
The Association of Chief Police officers says in its guidance to forces: “Article 8 of the Human Rights Act gives everyone the right to respect for their private and family life.....and publication of photographs could be a breach of that.”
According to ACPO, photographs should be released only in “exceptional circumstances”, where public safety needs to override the case for privacy.
These were criminals who had been convicted of very serious offences and who shouldn’t even have been in the UK.
Yet the Metropolitan Police said, “We will use all the tools in our tool box to try and find them without printing their identity – that’s the last recourse.”
Perhaps the most ludicrous recent example occurred a few weeks ago when a suspected car thief clambered onto the roof tops after a high speed chase and began pelting the police who had tried to follow him with roof tiles.
It ended with a siege that would waste the time of 50 police officers, close the street until 9.40pm and culminate in the spectacle of the suspect being handed a bucket of KFC chicken, a two litre bottle of Pepsi and a packet of cigarettes at tax payers expense – all apparently to preserve his “human rights.”
Of course there are examples of cases where the Act has led to results most of us would applaud. But we have to ask whether those results could not have been achieved by effective lobbying of our elected Parliament or a change of Government following an Election.
The Human Rights Act requires the Courts to interpret legislation so that it complies with the Convention if that is at all possible. If in the Court’s view any secondary legislation – passed after due consideration by both Houses of Parliament – is incompatible with the Convention that legislation can be struck down by the Court.
If any primary legislation is held to be incompatible there is a fast-track procedure which would enable the Government to short-circuit the normal processes of parliamentary scrutiny in order to amend or repeal any such legislation.
This surely a direct threat to the very democratic imperative on which the then Lord Chancellor waxed so eloquent 5 years ago.
One of the consequences of this is likely to be the increasing politicisation of judges.
How long, if the Act remains in force, will our present system of selection of judges survive? How long before the political backgrounds of candidates for judicial office become subject to Parliamentary scrutiny? How long before we see demands that these judges submit themselves for election?
The most common argument in favour of the Act is that it 'brings rights home.’ By that its supporters mean that since the Act could in any event be relied upon in an appeal from the English Courts to the European Court of Human Rights it is much better to allow English judges to apply it themselves. Indeed in presenting this argument the impression is sometimes given that the new jurisdiction of the English Courts will in some way replace the jurisdiction of the European Court of Human Rights. This is of course quite untrue. The right to appeal to the ECHR will remain.
I would concede that the previous situation was not ideal.
The ECHR does sometimes reach decisions which are very difficult to understand and sometimes cause considerable frustration.
But there is a remedy for this which the last Government was pursuing. The ECHR recognises the existence of what it calls a 'margin of appreciation.’ By that it means that will make some allowance, in applying the Convention, for the local circumstances and traditions of the country from which the appeal is brought. The last Government had embarked on a campaign to increase this margin of appreciation so that the Court would give greater leeway to countries to decide things for themselves.
Now the very future of the margin of appreciation is uncertain. Academic controversy rages on to whether our courts will apply it. And the ECHR is much less likely to apply it to decisions of our Courts than to decisions of administrative bodies.
It is in this context that David Cameron’s proposal for a British Bill of Rights should be considered.
As Mr Cameron expressly said the existence of a clear and codified British Bill of Rights will tend to lead the European Court of Human Rights to apply, and I would add to enhance, the “margin of appreciation.”
This seems to me to be the key to the continuing application and acceptance of the European Convention. It was intended to be a backstop to ensure that there was no repetition in Western European of Nazi atrocities and to minimise, as far as possible, the danger of future totalitarian outrages. It was not intended to strike down carefully considered judgements by democratically elected authorities of where the balance should be struck between legitimate but competing interests.
The route to this more limited role for the Convention and the Court which adjudicates on it lies through an enhanced margin of appreciation. A British Bill of Rights may well help us to reach this very desirable destination.
It is of course true, as Mr Cameron himself acknowledged, that the drafting of such a Bill would represent a formidable challenge. But this is true of all charters of this kind. If it helps us to achieve a workable solution to our relationship with the European Convention the effort will be well worth while.
And if it also enables us to scrap the discredited Human Rights Act it would be doubly welcome.
As the distinguished Scottish judge, Lord McCluskey predicted, the Act has become:- “A field day for crackpots, a pain in the neck for judges and a goldmine for lawyers.”
It is an experiment that has failed. It should go.
Saturday, July 6, 2013
Report on the regulatory consistency of risk-weighted assets in the banking book issued by the Basel Committee
Report on the regulatory consistency of risk-weighted assets in the banking book issued by the Basel Committee
http://www.bis.org/press/p130705.htm
BCBS, Jul 5, 2013
The Basel Committee on Banking Supervision has today published its first report on the regulatory consistency of risk-weighted assets (RWAs) for credit risk in the banking book. This study is a part of its wider Regulatory Consistency Assessment Programme (RCAP), which is intended to ensure consistent implementation of the Basel III framework. The study draws on supervisory data from more than 100 major banks, as well as additional data on sovereign, bank and corporate exposures collected from 32 major international banks as part of a portfolio benchmarking exercise.
There is considerable variation across banks in average RWAs for credit risk in the banking book. The study published today finds that most of the variation in RWAs can be explained by broad differences in the composition of banks' assets, reflecting differences in risk preferences as intended under the risk-based capital framework. However, there is also material variation driven by diversity in bank and supervisory practices.
Through a portfolio benchmarking exercise, the study found a high degree of consistency in banks' assessment of the relative riskiness of obligors. That is, there was a high correlation in how banks rank a portfolio of individual borrowers. Differences exist, however, in the levels of estimated risk, as expressed in probability of default (PD) and loss-given-default (LGD), that banks assign. These differences drive the variation in risk weights attributable to individual bank practices, and could result in the reported capital ratios for some outlier banks varying by as much as 2 percentage points from a 10% risk-based capital ratio benchmark (or 20% in relative terms) in either direction, although the capital ratios for most banks fall within a narrower range.
Notable outliers are evident in each asset class, with the corporate asset class showing the tightest clustering of banks around a central tendency, and the sovereign asset class showing the greatest variation. The low-default nature of the benchmark portfolios and the consequent challenges in obtaining appropriate data for risk estimation may be one factor contributing to differences across banks, especially for banks' estimates of LGDs in the sovereign and bank asset classes.
The report also includes a preliminary discussion of potential policy options that the Committee could pursue in seeking to minimise excessive practice-based variations. The Committee is conscious of the need to ensure that the capital framework retains its risk sensitivity, while at the same time promoting improved comparability of regulatory capital calculations by banks.
Commenting on the report, Stefan Ingves, Chairman of the Basel Committee and Governor of Sveriges Riksbank, said: "While some variation in risk weightings should be expected with internal model-based approaches, the considerable variation observed warrants further attention. In the near term, information from this study on the relative positions of banks is being used by national supervisors and banks to take action to improve consistency. In addition, the Committee is using the results as part of its ongoing work to improve the comparability of the regulatory capital ratios and to enhance bank disclosures. The Committee will be considering similar exercises to monitor consistency in capital outcomes and assess improvement over time."
http://www.bis.org/press/p130705.htm
BCBS, Jul 5, 2013
The Basel Committee on Banking Supervision has today published its first report on the regulatory consistency of risk-weighted assets (RWAs) for credit risk in the banking book. This study is a part of its wider Regulatory Consistency Assessment Programme (RCAP), which is intended to ensure consistent implementation of the Basel III framework. The study draws on supervisory data from more than 100 major banks, as well as additional data on sovereign, bank and corporate exposures collected from 32 major international banks as part of a portfolio benchmarking exercise.
There is considerable variation across banks in average RWAs for credit risk in the banking book. The study published today finds that most of the variation in RWAs can be explained by broad differences in the composition of banks' assets, reflecting differences in risk preferences as intended under the risk-based capital framework. However, there is also material variation driven by diversity in bank and supervisory practices.
Through a portfolio benchmarking exercise, the study found a high degree of consistency in banks' assessment of the relative riskiness of obligors. That is, there was a high correlation in how banks rank a portfolio of individual borrowers. Differences exist, however, in the levels of estimated risk, as expressed in probability of default (PD) and loss-given-default (LGD), that banks assign. These differences drive the variation in risk weights attributable to individual bank practices, and could result in the reported capital ratios for some outlier banks varying by as much as 2 percentage points from a 10% risk-based capital ratio benchmark (or 20% in relative terms) in either direction, although the capital ratios for most banks fall within a narrower range.
Notable outliers are evident in each asset class, with the corporate asset class showing the tightest clustering of banks around a central tendency, and the sovereign asset class showing the greatest variation. The low-default nature of the benchmark portfolios and the consequent challenges in obtaining appropriate data for risk estimation may be one factor contributing to differences across banks, especially for banks' estimates of LGDs in the sovereign and bank asset classes.
The report also includes a preliminary discussion of potential policy options that the Committee could pursue in seeking to minimise excessive practice-based variations. The Committee is conscious of the need to ensure that the capital framework retains its risk sensitivity, while at the same time promoting improved comparability of regulatory capital calculations by banks.
Commenting on the report, Stefan Ingves, Chairman of the Basel Committee and Governor of Sveriges Riksbank, said: "While some variation in risk weightings should be expected with internal model-based approaches, the considerable variation observed warrants further attention. In the near term, information from this study on the relative positions of banks is being used by national supervisors and banks to take action to improve consistency. In addition, the Committee is using the results as part of its ongoing work to improve the comparability of the regulatory capital ratios and to enhance bank disclosures. The Committee will be considering similar exercises to monitor consistency in capital outcomes and assess improvement over time."
Friday, July 5, 2013
On Mr Lafe Solomon's, National Labor Relations Board's acting general counsel, letter to Cablevision
The Lord of U.S. Labor Policy. By Kimberley Strassel
Lafe Solomon, acting general counsel of the National Labor Relations Board, defies Congress and the courts on behalf of Big Labor.The Wall Street Journal, July 4, 2013, on page A9
http://online.wsj.com/article/SB10001424127887323899704578583671862397166.html
For a true expression of the imperious and extralegal tendencies of the Obama administration, there is little that compares with the Wisdom of Solomon. Lafe Solomon, that is, the acting general counsel of the National Labor Relations Board.
Mr. Solomon's wisdom was on revealing display this week, in the form of a newly disclosed letter that the Obama appointee sent to Cablevision in May. The letter was tucked into Cablevison's petition asking the Supreme Court this week to grant an emergency stay of NLRB proceedings against it. The Supremes unfortunately denied that request, though the exercise may prove valuable for shining new light on the labor board's conceit.
A half-year has passed since the D.C. Circuit Court of Appeals ruled in Noel Canning that President Obama's appointments to the NLRB were unconstitutional, and thus that the board lacks a legal quorum. In May, the Third Circuit affirmed this ruling. Yet the NLRB—determined to keep churning out a union agenda—has openly defied both appeals courts by continuing to issue rulings and complaints.
Regional directors in April filed two such unfair-labor-practice complaints against Cablevision. The company requested that Mr. Solomon halt the proceedings, given the NLRB's invalid status. It is Mr. Solomon's refusal, dated May 28, that provides the fullest expression of the NLRB's insolence.
The acting general counsel begins his letter by explaining that the legitimacy of the board is really neither here nor there. Why? Because Mr. Solomon was himself "appointed by the President and confirmed by the Senate"—and therefore, apparently, is now sole and unchecked arbiter of all national labor policy.
This is astonishing on many levels, the least of which is that it is untrue. Mr. Solomon is the acting general counsel precisely because the Senate has refused to confirm him since he was first nominated in June 2011. Nor will it, ever, given his Boeing BA +1.38% escapades.
Then there is the National Labor Relations Act, which created the NLRB. The law clearly says that the general counsel acts "on behalf of the Board"—a board that is today void, illegitimate, null, illegal. Mr. Solomon admits the "behalf" problem in his letter, though he says he's certain Congress nonetheless meant for him to be "independent" of the board. He says.
The acting general counsel naturally rushes to explain that—his omnipotence aside—the NLRB still has every right to ignore the courts. His argument runs thus: Because a decade ago the 11th Circuit issued an opinion that upholds recess appointments (though it didn't deal with Mr. Obama's breathtaking reading of that power), there exists a "split" in the circuit courts. The NLRB is therefore justified in ignoring any courts with which it disagrees until the Supreme Court has "resolved" the question.
What Mr. Solomon fails to note is the extremes the NLRB has gone to in order to suggest court confusion. The agency has deviated from past procedures, and it refused to ask either the D.C. Circuit or the Third Circuit to "stay" their opinions. Why? Because to do so—and to be rebuffed—would put the NLRB under enormous pressure to acknowledge that those courts have authority over its actions.
The board has likewise ignored the fact that the D.C. Circuit hears more NLRB decisions than any other, and is also the pre-eminent court for reviewing federal agency decisions. This ought to entitle that court, and its Noel Canning ruling, respectful deference from the labor board.
The most revealing part of Mr. Solomon's letter is the section cynically outlining why the NLRB continues to operate at a feverish pace. Mr. Solomon notes that this isn't the first time the board has operated without a quorum.
The NLRB issued 550 decisions with just two board members before the Supreme Court's 2010 ruling in New Process Steel that the NLRB must have a three-person board quorum to operate. Mr. Solomon brags that of these 550, only about 100 were "impacted" by the Supreme Court's ruling—which, he writes, proves that the NLRB is justified in continuing to operate even at times when its "authority" has been challenged.
Mr. Solomon is in fact celebrating that of the 550 outfits harassed by an illegal, two-member board, only about 100 later decided they had the money, time and wherewithal to spend years relitigating in front of the labor goon squad. The NLRB is counting on the same outcome in Cablevision and other recent actions.
The board will push through as many rulings and complaints against companies as it can before the Supreme Court rules on its legitimacy. And it will trust that the firms it has attacked and drained will be too weary to then try for reversals. This is why the Obama administration waited so long to petition the Supreme Court to reverse Noel Canning. The longer this process takes, the more damage the NLRB can inflict on behalf of its union taskmasters.
Right now, the NLRB is the only weapon the administration can wield on behalf of Big Labor. The need to placate that most powerful special interest was behind Mr. Obama's decision to install his illegal recess appointments in the first place, and it explains the NLRB's continuing defiance of courts and Congress. Mr. Solomon's wisdom is the Obama philosophy of raw power, in all its twisted glory.
Lafe Solomon, acting general counsel of the National Labor Relations Board, defies Congress and the courts on behalf of Big Labor.The Wall Street Journal, July 4, 2013, on page A9
http://online.wsj.com/article/SB10001424127887323899704578583671862397166.html
For a true expression of the imperious and extralegal tendencies of the Obama administration, there is little that compares with the Wisdom of Solomon. Lafe Solomon, that is, the acting general counsel of the National Labor Relations Board.
Mr. Solomon's wisdom was on revealing display this week, in the form of a newly disclosed letter that the Obama appointee sent to Cablevision in May. The letter was tucked into Cablevison's petition asking the Supreme Court this week to grant an emergency stay of NLRB proceedings against it. The Supremes unfortunately denied that request, though the exercise may prove valuable for shining new light on the labor board's conceit.
A half-year has passed since the D.C. Circuit Court of Appeals ruled in Noel Canning that President Obama's appointments to the NLRB were unconstitutional, and thus that the board lacks a legal quorum. In May, the Third Circuit affirmed this ruling. Yet the NLRB—determined to keep churning out a union agenda—has openly defied both appeals courts by continuing to issue rulings and complaints.
Regional directors in April filed two such unfair-labor-practice complaints against Cablevision. The company requested that Mr. Solomon halt the proceedings, given the NLRB's invalid status. It is Mr. Solomon's refusal, dated May 28, that provides the fullest expression of the NLRB's insolence.
The acting general counsel begins his letter by explaining that the legitimacy of the board is really neither here nor there. Why? Because Mr. Solomon was himself "appointed by the President and confirmed by the Senate"—and therefore, apparently, is now sole and unchecked arbiter of all national labor policy.
This is astonishing on many levels, the least of which is that it is untrue. Mr. Solomon is the acting general counsel precisely because the Senate has refused to confirm him since he was first nominated in June 2011. Nor will it, ever, given his Boeing BA +1.38% escapades.
Then there is the National Labor Relations Act, which created the NLRB. The law clearly says that the general counsel acts "on behalf of the Board"—a board that is today void, illegitimate, null, illegal. Mr. Solomon admits the "behalf" problem in his letter, though he says he's certain Congress nonetheless meant for him to be "independent" of the board. He says.
The acting general counsel naturally rushes to explain that—his omnipotence aside—the NLRB still has every right to ignore the courts. His argument runs thus: Because a decade ago the 11th Circuit issued an opinion that upholds recess appointments (though it didn't deal with Mr. Obama's breathtaking reading of that power), there exists a "split" in the circuit courts. The NLRB is therefore justified in ignoring any courts with which it disagrees until the Supreme Court has "resolved" the question.
What Mr. Solomon fails to note is the extremes the NLRB has gone to in order to suggest court confusion. The agency has deviated from past procedures, and it refused to ask either the D.C. Circuit or the Third Circuit to "stay" their opinions. Why? Because to do so—and to be rebuffed—would put the NLRB under enormous pressure to acknowledge that those courts have authority over its actions.
The board has likewise ignored the fact that the D.C. Circuit hears more NLRB decisions than any other, and is also the pre-eminent court for reviewing federal agency decisions. This ought to entitle that court, and its Noel Canning ruling, respectful deference from the labor board.
The most revealing part of Mr. Solomon's letter is the section cynically outlining why the NLRB continues to operate at a feverish pace. Mr. Solomon notes that this isn't the first time the board has operated without a quorum.
The NLRB issued 550 decisions with just two board members before the Supreme Court's 2010 ruling in New Process Steel that the NLRB must have a three-person board quorum to operate. Mr. Solomon brags that of these 550, only about 100 were "impacted" by the Supreme Court's ruling—which, he writes, proves that the NLRB is justified in continuing to operate even at times when its "authority" has been challenged.
Mr. Solomon is in fact celebrating that of the 550 outfits harassed by an illegal, two-member board, only about 100 later decided they had the money, time and wherewithal to spend years relitigating in front of the labor goon squad. The NLRB is counting on the same outcome in Cablevision and other recent actions.
The board will push through as many rulings and complaints against companies as it can before the Supreme Court rules on its legitimacy. And it will trust that the firms it has attacked and drained will be too weary to then try for reversals. This is why the Obama administration waited so long to petition the Supreme Court to reverse Noel Canning. The longer this process takes, the more damage the NLRB can inflict on behalf of its union taskmasters.
Right now, the NLRB is the only weapon the administration can wield on behalf of Big Labor. The need to placate that most powerful special interest was behind Mr. Obama's decision to install his illegal recess appointments in the first place, and it explains the NLRB's continuing defiance of courts and Congress. Mr. Solomon's wisdom is the Obama philosophy of raw power, in all its twisted glory.
Credit and growth after financial crises, by Elod Takats and Christian Upper
Credit and growth after financial crises, by Előd Takáts and Christian Upper
BIS Working Papers No 416
July 2013
http://www.bis.org/publ/work416.htm
We find that declining bank credit to the private sector will not necessarily constrain the economic recovery after output has bottomed out following a financial crisis. To obtain this result, we examine data from 39 financial crises, which - as the current one - were preceded by credit booms. In these crises the change in bank credit, either in real terms or relative to GDP, consistently did not correlate with growth during the first two years of the recovery. In the third and fourth year, the correlation becomes statistically significant but remains small in economic terms. The lack of association between deleveraging and the speed of recovery does not seem to arise due to limited data. In fact, our data shows that increasing competitiveness, via exchange rate depreciations, is statistically and economically significantly associated with faster recoveries. Our results contradict the current consensus that private sector deleveraging is necessarily harmful for growth.
Keywords: creditless recovery, financial crises, deleveraging, household debt, corporate debt
JEL classification: G01, E32
Conclusion
We find that bank lending to the private sector and economic growth are essentially uncorrelated after those financial crises that were preceded by credit booms. This result is relevant for the major advanced economies recovering from the financial crisis, since the current crisis was also preceded by a credit boom. Our results suggest that the ongoing deleveraging in advanced economies might not be as harmful for the recovery as many fear.
We also find that depreciating real exchange rates are statistically and economically significantly associated with substantially stronger economic growth. This finding on real exchange rates shows that the price channel for external adjustment can contribute to stronger economic activities. Consequently, if crisis hit countries can generate substantial real effective exchange rate depreciation, either via nominal exchange rate depreciation or internal cost adjustments, this could hasten their recovery. However, given the global nature of the current crisis this solution might not be available for all countries at the same time.
Furthermore, we find some weak negative association between public debt ratios and recoveries: increasing public debt seems to lead to somewhat weaker recoveries. This might cast doubt on the claims that fiscal stimulus is the appropriate answer to fasten the recovery now.
While we are aware that these results come with caveats, we believe that our results provide a useful contribution to the creditless recovery literature. We hope that these finding would elicit debates and further research to understand debt dynamics, financial crises and how recoveries work.
BIS Working Papers No 416
July 2013
http://www.bis.org/publ/work416.htm
We find that declining bank credit to the private sector will not necessarily constrain the economic recovery after output has bottomed out following a financial crisis. To obtain this result, we examine data from 39 financial crises, which - as the current one - were preceded by credit booms. In these crises the change in bank credit, either in real terms or relative to GDP, consistently did not correlate with growth during the first two years of the recovery. In the third and fourth year, the correlation becomes statistically significant but remains small in economic terms. The lack of association between deleveraging and the speed of recovery does not seem to arise due to limited data. In fact, our data shows that increasing competitiveness, via exchange rate depreciations, is statistically and economically significantly associated with faster recoveries. Our results contradict the current consensus that private sector deleveraging is necessarily harmful for growth.
Keywords: creditless recovery, financial crises, deleveraging, household debt, corporate debt
JEL classification: G01, E32
Conclusion
We find that bank lending to the private sector and economic growth are essentially uncorrelated after those financial crises that were preceded by credit booms. This result is relevant for the major advanced economies recovering from the financial crisis, since the current crisis was also preceded by a credit boom. Our results suggest that the ongoing deleveraging in advanced economies might not be as harmful for the recovery as many fear.
We also find that depreciating real exchange rates are statistically and economically significantly associated with substantially stronger economic growth. This finding on real exchange rates shows that the price channel for external adjustment can contribute to stronger economic activities. Consequently, if crisis hit countries can generate substantial real effective exchange rate depreciation, either via nominal exchange rate depreciation or internal cost adjustments, this could hasten their recovery. However, given the global nature of the current crisis this solution might not be available for all countries at the same time.
Furthermore, we find some weak negative association between public debt ratios and recoveries: increasing public debt seems to lead to somewhat weaker recoveries. This might cast doubt on the claims that fiscal stimulus is the appropriate answer to fasten the recovery now.
While we are aware that these results come with caveats, we believe that our results provide a useful contribution to the creditless recovery literature. We hope that these finding would elicit debates and further research to understand debt dynamics, financial crises and how recoveries work.
Wednesday, July 3, 2013
Opening a New Era in U.S.-Iraq Relations - We Iraqis, grateful for America's sacrifice, now seek an economic partner
Opening a New Era in U.S.-Iraq Relations. By Lukman Faily
We Iraqis, grateful for America's sacrifice, now seek an economic partner.
The Wall Street Journal, July 3, 2013, on page A13
http://online.wsj.com/article/SB10001424127887324436104578579212252109642.html
Last week, the United Nations Security Council voted unanimously to lift international trade and financial sanctions on Iraq that have been in effect since Saddam Hussein invaded Kuwait in the 1990s. Iraq's exit from Chapter VII of the U.N. Charter—and the substantial progress it has made with Kuwait—is a major accomplishment, and one of several recent developments we Iraqis are celebrating.
Though most Americans probably believe that Iraqis are fed up with the U.S., the truth is that Iraqis appreciate what the U.S. has done and are looking for more U.S. involvement—not more sacrifice of blood and treasure, but more diplomatic, political, trade, investment and economic partnership.
The next clear step is for the U.S. and Iraq to fully implement the Strategic Framework Agreement, signed prior to the 2011 withdrawal of U.S. forces, which defines the overall political, economic, cultural and security ties between our two countries. Americans should see this agreement not as a ticket out of Iraq, but as the foundation for a long-term partnership with the people and government of Iraq.
At a time of profound change in the Middle East, the implementation of the agreement has so far been slow and uneven. While security coordination through military sales and financing programs continues, an expedited delivery of promised sales, better intelligence sharing, and stepped-up assistance in counterterrorism and training is essential for Iraq's fight against terrorism—a clear national security interest of the U.S. Implementing this agreement should not be linked to regional issues, such as the conflict in Syria.
As we look forward to full implementation of the Strategic Framework Agreement, the legacy of the past 10 years is something to build on. After decades of dictatorship, three disastrous wars, international isolation, economic sanctions, the displacement of more than a million Iraqis and the deaths of tens of thousands more, Iraq has begun to build a multiethnic, multiparty democracy with respect for the rule of law.
It hasn't been easy. But Iraqis are making progress towards creating a democratic system. All the political parties have accepted elections as a method of power-sharing and peaceful change. Terrible as it is, the current violence in Iraq is primarily caused by terrorism, not civil war. As the recent provincial elections affirmed, Iraqis are developing a culture of democracy—something that many of our neighbors do not yet have.
With Iraq taking its place as a partner, not a protectorate, Americans can help by providing political, diplomatic and security assistance, in addition to technical know-how and investment capital.
On the political front, the U.S. can serve as an honest broker among Iraqi factions that are learning to work with each other. Americans are seen as mature partners who have proven their commitment to Iraq, and their involvement is not perceived as a threat to our sovereignty or national interest.
On the diplomatic front, Iraq has rejoined the international community by exiting Chapter VII, and it has done important work with the International Monetary Fund, World Bank and the Arab League. Looking ahead, Iraq and the U.S. can cooperate to resolve broader regional challenges.
Now that Iraq is moving toward a market economy friendly to foreign investment, Americans can provide what our nation needs: expertise on energy technologies, engineering, design, construction and financial services. Iraq offers tremendous investment opportunities for developing and servicing telecommunications, health care, education, water treatment, and bridges and highways, to name a few.
Meanwhile, oil production has increased by 50% since 2005, and our economy is expected to grow by at least 9.4% annually through 2016. Iraq expects to increase oil production to 4.5 million barrels per day by the end of 2014 and nine million barrels a day by 2020—a 157% increase from our current production levels. With the goal of diversifying our economy beyond energy, Iraq plans to invest these oil revenues in education and critical development projects, including restoring electrical power and rebuilding our transportation system.
Moreover, Iraq is in the process of purchasing over $10 billion worth of military equipment, paid for with our own revenues, and we are eager to buy this hardware from the U.S. Iraq's recent purchase of 30 Boeing BA +1.40% planes for our national carrier testifies to our potential as a market for U.S. goods and services.
Iraqis will be forever grateful to Americans for sacrificing alongside us to overthrow Saddam's brutal tyranny. We now look forward to working together to build a strong and prosperous democracy in Iraq and to cement a strategic partnership between our nations.
Mr. Faily is the newly appointed ambassador of Iraq to the United States.
We Iraqis, grateful for America's sacrifice, now seek an economic partner.
The Wall Street Journal, July 3, 2013, on page A13
http://online.wsj.com/article/SB10001424127887324436104578579212252109642.html
Last week, the United Nations Security Council voted unanimously to lift international trade and financial sanctions on Iraq that have been in effect since Saddam Hussein invaded Kuwait in the 1990s. Iraq's exit from Chapter VII of the U.N. Charter—and the substantial progress it has made with Kuwait—is a major accomplishment, and one of several recent developments we Iraqis are celebrating.
Though most Americans probably believe that Iraqis are fed up with the U.S., the truth is that Iraqis appreciate what the U.S. has done and are looking for more U.S. involvement—not more sacrifice of blood and treasure, but more diplomatic, political, trade, investment and economic partnership.
The next clear step is for the U.S. and Iraq to fully implement the Strategic Framework Agreement, signed prior to the 2011 withdrawal of U.S. forces, which defines the overall political, economic, cultural and security ties between our two countries. Americans should see this agreement not as a ticket out of Iraq, but as the foundation for a long-term partnership with the people and government of Iraq.
At a time of profound change in the Middle East, the implementation of the agreement has so far been slow and uneven. While security coordination through military sales and financing programs continues, an expedited delivery of promised sales, better intelligence sharing, and stepped-up assistance in counterterrorism and training is essential for Iraq's fight against terrorism—a clear national security interest of the U.S. Implementing this agreement should not be linked to regional issues, such as the conflict in Syria.
As we look forward to full implementation of the Strategic Framework Agreement, the legacy of the past 10 years is something to build on. After decades of dictatorship, three disastrous wars, international isolation, economic sanctions, the displacement of more than a million Iraqis and the deaths of tens of thousands more, Iraq has begun to build a multiethnic, multiparty democracy with respect for the rule of law.
It hasn't been easy. But Iraqis are making progress towards creating a democratic system. All the political parties have accepted elections as a method of power-sharing and peaceful change. Terrible as it is, the current violence in Iraq is primarily caused by terrorism, not civil war. As the recent provincial elections affirmed, Iraqis are developing a culture of democracy—something that many of our neighbors do not yet have.
With Iraq taking its place as a partner, not a protectorate, Americans can help by providing political, diplomatic and security assistance, in addition to technical know-how and investment capital.
On the political front, the U.S. can serve as an honest broker among Iraqi factions that are learning to work with each other. Americans are seen as mature partners who have proven their commitment to Iraq, and their involvement is not perceived as a threat to our sovereignty or national interest.
On the diplomatic front, Iraq has rejoined the international community by exiting Chapter VII, and it has done important work with the International Monetary Fund, World Bank and the Arab League. Looking ahead, Iraq and the U.S. can cooperate to resolve broader regional challenges.
Now that Iraq is moving toward a market economy friendly to foreign investment, Americans can provide what our nation needs: expertise on energy technologies, engineering, design, construction and financial services. Iraq offers tremendous investment opportunities for developing and servicing telecommunications, health care, education, water treatment, and bridges and highways, to name a few.
Meanwhile, oil production has increased by 50% since 2005, and our economy is expected to grow by at least 9.4% annually through 2016. Iraq expects to increase oil production to 4.5 million barrels per day by the end of 2014 and nine million barrels a day by 2020—a 157% increase from our current production levels. With the goal of diversifying our economy beyond energy, Iraq plans to invest these oil revenues in education and critical development projects, including restoring electrical power and rebuilding our transportation system.
Moreover, Iraq is in the process of purchasing over $10 billion worth of military equipment, paid for with our own revenues, and we are eager to buy this hardware from the U.S. Iraq's recent purchase of 30 Boeing BA +1.40% planes for our national carrier testifies to our potential as a market for U.S. goods and services.
Iraqis will be forever grateful to Americans for sacrificing alongside us to overthrow Saddam's brutal tyranny. We now look forward to working together to build a strong and prosperous democracy in Iraq and to cement a strategic partnership between our nations.
Mr. Faily is the newly appointed ambassador of Iraq to the United States.
Saturday, June 29, 2013
Basel Committee consults on derivatives-related reforms to capital adequacy framework
Basel Committee consults on derivatives-related reforms to capital adequacy framework
BCBS, June 28, 2013
The Basel Committee today released two consultative papers on the
treatment of derivatives-related transactions under the capital adequacy
framework.
1 Capital treatment of bank exposures to central counterparties - consultative document
http://www.bis.org/publ/bcbs253.htm
PDF of full document: http://www.bis.org/publ/bcbs253.pdf
The Basel Committee on Banking Supervision, in cooperation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), is seeking views on potential changes to the capital treatment of banks' exposure to central counterparties (CCPs). The Basel Committee published an interim standard in July 2012 and noted at that time that additional work was needed to improve the capital framework. Introduction of the interim standard represented an important step towards ensuring appropriate measurement, monitoring and management of banks' exposures to CCPs, exposures which had previously attracted no regulatory capital charge.
2 The non-internal model method for capitalising counterparty credit risk exposures - consultative document
http://www.bis.org/publ/bcbs254.htm
PDF of full document: http://www.bis.org/publ/bcbs254.pdf
The Basel Committee's consultative paper The non-internal model method for capitalising counterparty credit risk exposures outlines a proposal to improve the methodology for assessing the counterparty credit risk associated with derivative transactions. The proposal would, when finalised, replace the capital framework's existing methods - the Current Exposure Method and the Standardised Method. It improves on the risk sensitivity of the Current Exposure Method by differentiating between margined and unmargined trades. The proposed non-internal model method updates supervisory factors to reflect the level of volatilities observed over the recent stress period and provides a more meaningful recognition of netting benefits. At the same time, the proposed method is suitable for a wide variety of derivatives transactions, reduces the scope for discretion by banks and avoids undue complexity.
The Basel Committee will conduct a quantitative impact study in order to inform the final formulation of the non-internal model method and to assess the difference in exposure and overall capital requirements under this proposal as compared to other measures of counterparty credit risk under the Basel framework. In addition to replacing the Current Exposure Method and the Standardised Method, the non-internal model method may also be used with respect to the leverage ratio, large exposures, and exposures to central counterparties (CCPs).
BCBS, June 28, 2013
1 Capital treatment of bank exposures to central counterparties - consultative document
http://www.bis.org/publ/bcbs253.htm
PDF of full document: http://www.bis.org/publ/bcbs253.pdf
The Basel Committee on Banking Supervision, in cooperation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), is seeking views on potential changes to the capital treatment of banks' exposure to central counterparties (CCPs). The Basel Committee published an interim standard in July 2012 and noted at that time that additional work was needed to improve the capital framework. Introduction of the interim standard represented an important step towards ensuring appropriate measurement, monitoring and management of banks' exposures to CCPs, exposures which had previously attracted no regulatory capital charge.
The proposed changes to the interim standard seek to establish a
capital treatment that ensures banks' exposures to central
counterparties are adequately capitalised, while also preserving
incentives for central clearing. They promote robust risk management by
banks and CCPs, including by encouraging CCPs to satisfy the CPSS-IOSCO Principles for financial market infrastructures
(PFMIs). The proposed changes respond to evidence that application of
the interim rules could lead both to instances of very little capital
being held against exposures to some CCPs, and potentially in certain
cases, to capital charges that are higher than for bilateral
(non-centrally-cleared) transactions. There was also concern that, in
some cases, the interim capital treatment might not create the
appropriate incentives for maintaining generous default funds. [my emphasis] These
outcomes are potentially inconsistent with the Committee's objectives
and the changes set out in the consultative paper seek to address those
concerns.
In parallel to this consultation, the Committee will also conduct a
quantitative impact study. Any amendments to the proposed standard will
be based on feedback on this consultative document, evidence from the
quantitative impact study that will be conducted alongside this
consultation, and further consultation with CPSS and IOSCO. The
Committee is not proposing any change to the capital treatment of
exposures to non-qualifying CCPs. Nor does this consultative paper
consider any changes to the rules on capital treatment of clearing
member exposures to clients.
http://www.bis.org/publ/bcbs254.htm
PDF of full document: http://www.bis.org/publ/bcbs254.pdf
The Basel Committee's consultative paper The non-internal model method for capitalising counterparty credit risk exposures outlines a proposal to improve the methodology for assessing the counterparty credit risk associated with derivative transactions. The proposal would, when finalised, replace the capital framework's existing methods - the Current Exposure Method and the Standardised Method. It improves on the risk sensitivity of the Current Exposure Method by differentiating between margined and unmargined trades. The proposed non-internal model method updates supervisory factors to reflect the level of volatilities observed over the recent stress period and provides a more meaningful recognition of netting benefits. At the same time, the proposed method is suitable for a wide variety of derivatives transactions, reduces the scope for discretion by banks and avoids undue complexity.
The Basel Committee will conduct a quantitative impact study in order to inform the final formulation of the non-internal model method and to assess the difference in exposure and overall capital requirements under this proposal as compared to other measures of counterparty credit risk under the Basel framework. In addition to replacing the Current Exposure Method and the Standardised Method, the non-internal model method may also be used with respect to the leverage ratio, large exposures, and exposures to central counterparties (CCPs).
Friday, June 28, 2013
Contradictory rules are putting bankers in a bind and threatening the housing recovery. By Frank Keating
Regulators Have Created a Mortgage Minefield. By Frank Keating
Contradictory rules are putting bankers in a bind and threatening the housing recovery.
The Wall Street Journal, June 27, 2013, on page A19
http://online.wsj.com/article/SB10001424127887324183204578567993734188214.html
Bankers will soon step into a mortgage minefield—a no-win landscape in which every move will be fraught with peril, and in which the ultimate casualties will be the nascent housing recovery and the American home buyer.
This minefield—a set of incompatible, contradictory regulations—is a creation of the federal government. The first regulation came from the Department of Housing and Urban Development in March, and it said that mortgage lenders can be liable for violations of the 1968 Fair Housing Act if their lending decisions have a so-called "disparate impact" on minorities. No evidence of discriminatory intent or action is required, merely statistical variance in a bank's lending outcomes.
Bankers support equal housing opportunity, but this represents a radical shift in how the government enforces fair housing law. The text of the law prohibits discrimination "because of" race, religion, sex and other protected classes, which means that the lender must have intended to discriminate. This is how we understood the law during the first Bush administration, when I enforced fair housing laws as general counsel and acting deputy secretary atHUD.
The Supreme Court recently agreed to hear the Mount Holly v. Mt. Holly Gardens Citizens in Action case to review whether disparate impact creates liability under the Fair Housing Act. But in the meantime, lenders are facing lawsuits and prosecutions even if they have done nothing wrong.
That's bad enough, but on Jan. 10, the Consumer Financial Protection Bureau's "ability to repay" rule will take effect. This Dodd-Frank mandated rule exposes lenders to risk of litigation if borrowers default on a mortgage—unless the loan falls into a legal "safe harbor" under the CFPB's qualified-mortgage, or QM, guidelines. For example, a loan in which the borrower's total monthly debt payments exceed 43% of his income would presumably fall outside the QM safe harbor.
Even when lenders can prove they have done their best to serve consumers outside the safe harbor, the expected costs of defenses—and delays in resolving defaults—will be passed on to all consumers. This will make lending, even to many creditworthy borrowers, too costly.
Many banks have said that they plan to loan only within the QM guidelines, and Fannie Mae and Freddie Mac —the taxpayer-backed companies that undergird the secondary mortgage market—will buy only qualified mortgages. Thus, the QM will be the primary mortgage product available to home buyers.
The QM requirements will result in an immediate tightening of credit, with banks substituting a one-size-fits-all federal mandate for their own good judgment and sound underwriting. Many creditworthy borrowers who are on the cusp of meeting the requirements—and who may qualify before Jan. 10—will be cut off from the dream of home ownership.
Many of these aspirational home buyers—those who have solid financial futures but who don't fit the QM box—are members of minorities. Moreover, the poverty gap that exists along many racial lines virtually guarantees that tightened mortgage standards will mean that members of some races will be denied credit at a higher rate than others—and voila, disparate impact.
Bankers will be damned if they do and damned if they don't. If they follow the QM guidelines and thus tighten credit, they will run afoul of the novel disparate-impact interpretation of housing laws. If they loosen lending standards to ensure that lending outcomes are identical for every protected group, then they expose themselves to risk of litigation if some of those loans end up in default.
The end result will be confusion and uncertainty. Some banks will stop making mortgage loans altogether, which will further cut access to credit, reduce competition and drive up costs for all home buyers.
Raj Date, the former deputy director of the Consumer Financial Protection Bureau who wrote a large portion of the qualified-mortgage guidelines, now runs a startup venture and mortgage lender that he says will offer loans outside the QM guidelines. As he recently told this newspaper: "It is just way too hard for good, responsible people to get good mortgages today."
We agree. To get people into "good mortgages," the government needs to clear the minefield it created.
Mr. Keating, a former governor of Oklahoma and HUD general counsel, is president and CEO of the American Bankers Association.
Contradictory rules are putting bankers in a bind and threatening the housing recovery.
The Wall Street Journal, June 27, 2013, on page A19
http://online.wsj.com/article/SB10001424127887324183204578567993734188214.html
Bankers will soon step into a mortgage minefield—a no-win landscape in which every move will be fraught with peril, and in which the ultimate casualties will be the nascent housing recovery and the American home buyer.
This minefield—a set of incompatible, contradictory regulations—is a creation of the federal government. The first regulation came from the Department of Housing and Urban Development in March, and it said that mortgage lenders can be liable for violations of the 1968 Fair Housing Act if their lending decisions have a so-called "disparate impact" on minorities. No evidence of discriminatory intent or action is required, merely statistical variance in a bank's lending outcomes.
Bankers support equal housing opportunity, but this represents a radical shift in how the government enforces fair housing law. The text of the law prohibits discrimination "because of" race, religion, sex and other protected classes, which means that the lender must have intended to discriminate. This is how we understood the law during the first Bush administration, when I enforced fair housing laws as general counsel and acting deputy secretary atHUD.
The Supreme Court recently agreed to hear the Mount Holly v. Mt. Holly Gardens Citizens in Action case to review whether disparate impact creates liability under the Fair Housing Act. But in the meantime, lenders are facing lawsuits and prosecutions even if they have done nothing wrong.
That's bad enough, but on Jan. 10, the Consumer Financial Protection Bureau's "ability to repay" rule will take effect. This Dodd-Frank mandated rule exposes lenders to risk of litigation if borrowers default on a mortgage—unless the loan falls into a legal "safe harbor" under the CFPB's qualified-mortgage, or QM, guidelines. For example, a loan in which the borrower's total monthly debt payments exceed 43% of his income would presumably fall outside the QM safe harbor.
Even when lenders can prove they have done their best to serve consumers outside the safe harbor, the expected costs of defenses—and delays in resolving defaults—will be passed on to all consumers. This will make lending, even to many creditworthy borrowers, too costly.
Many banks have said that they plan to loan only within the QM guidelines, and Fannie Mae and Freddie Mac —the taxpayer-backed companies that undergird the secondary mortgage market—will buy only qualified mortgages. Thus, the QM will be the primary mortgage product available to home buyers.
The QM requirements will result in an immediate tightening of credit, with banks substituting a one-size-fits-all federal mandate for their own good judgment and sound underwriting. Many creditworthy borrowers who are on the cusp of meeting the requirements—and who may qualify before Jan. 10—will be cut off from the dream of home ownership.
Many of these aspirational home buyers—those who have solid financial futures but who don't fit the QM box—are members of minorities. Moreover, the poverty gap that exists along many racial lines virtually guarantees that tightened mortgage standards will mean that members of some races will be denied credit at a higher rate than others—and voila, disparate impact.
Bankers will be damned if they do and damned if they don't. If they follow the QM guidelines and thus tighten credit, they will run afoul of the novel disparate-impact interpretation of housing laws. If they loosen lending standards to ensure that lending outcomes are identical for every protected group, then they expose themselves to risk of litigation if some of those loans end up in default.
The end result will be confusion and uncertainty. Some banks will stop making mortgage loans altogether, which will further cut access to credit, reduce competition and drive up costs for all home buyers.
Raj Date, the former deputy director of the Consumer Financial Protection Bureau who wrote a large portion of the qualified-mortgage guidelines, now runs a startup venture and mortgage lender that he says will offer loans outside the QM guidelines. As he recently told this newspaper: "It is just way too hard for good, responsible people to get good mortgages today."
We agree. To get people into "good mortgages," the government needs to clear the minefield it created.
Mr. Keating, a former governor of Oklahoma and HUD general counsel, is president and CEO of the American Bankers Association.
Wednesday, June 26, 2013
Revised Basel III leverage ratio framework and disclosure requirements - consultative document
Revised Basel III leverage ratio framework and disclosure requirements - consultative document
BIS, June 2013
http://www.bis.org/publ/bcbs251.htm
An underlying feature of the financial crisis was the build-up of
excessive on- and off-balance sheet leverage in the banking system. The Basel III
reforms introduced a simple, transparent, non-risk based leverage ratio
to act as a credible supplementary measure to the risk-based capital
requirements. The leverage ratio is intended to:
Implementation of the leverage ratio requirement has begun with bank-level reporting to supervisors of the leverage ratio and its components from 1 January 2013, and will proceed with public disclosure starting 1 January 2015. Any final adjustments to the definition and calibration of the leverage ratio will be made by 2017, with a view to migrating to a Pillar 1 treatment on 1 January 2018 based on appropriate review and calibration.
The Basel Committee's consultative paper The revised Basel III leverage ratio framework is set out in the remainder of this document, along with the public disclosure requirements starting 1 January 2015. In summary, revisions to the framework relate primarily to the denominator of the leverage ratio, the Exposure Measure. The major changes to the Exposure Measure include:
Comments on this consultative report should be submitted by 20 September 2013 by email to baselcommittee@bis.org. Alternatively, comments may be sent by post to: Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the website of the Bank for International Settlements unless a contributor specifically requests confidential treatment.
BIS, June 2013
http://www.bis.org/publ/bcbs251.htm
- restrict the build-up of leverage in the banking sector to avoid destabilising deleveraging processes that can damage the broader financial system and the economy; and
- reinforce the risk-based requirements with a simple, non-risk-based "backstop" measure.
Implementation of the leverage ratio requirement has begun with bank-level reporting to supervisors of the leverage ratio and its components from 1 January 2013, and will proceed with public disclosure starting 1 January 2015. Any final adjustments to the definition and calibration of the leverage ratio will be made by 2017, with a view to migrating to a Pillar 1 treatment on 1 January 2018 based on appropriate review and calibration.
The Basel Committee's consultative paper The revised Basel III leverage ratio framework is set out in the remainder of this document, along with the public disclosure requirements starting 1 January 2015. In summary, revisions to the framework relate primarily to the denominator of the leverage ratio, the Exposure Measure. The major changes to the Exposure Measure include:
- specification of a broad scope of consolidation for the inclusion of exposures;
- clarification of the general treatment of derivatives and related collateral;
- enhanced treatment of written credit derivatives; and
- enhanced treatment of Securities Financing Transactions (SFTs) (eg repos).
Comments on this consultative report should be submitted by 20 September 2013 by email to baselcommittee@bis.org. Alternatively, comments may be sent by post to: Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the website of the Bank for International Settlements unless a contributor specifically requests confidential treatment.
Monday, June 24, 2013
Cochrane: Regulating the riskiness of bank assets is a dead end. Instead, fix the run-prone nature of bank liabilities
Stopping Bank Crises Before They Start. By John Cochrane
Regulating the riskiness of bank assets is a dead end. Instead, fix the run-prone nature of bank liabilitiesThe Wall Street Journal, June 24, 2013, on page A19
http://online.wsj.com/article/SB10001424127887324412604578513143034934554.html
In recent months the realization has sunk in across the country that the 2010 Dodd-Frank financial-reform legislation is a colossal mess. Yet we obviously can't go back to the status quo that produced a financial catastrophe in 2007-08. Fortunately, there is an alternative.
At its core, the recent financial crisis was a run. The run was concentrated in the "shadow banking system" of overnight repurchase agreements, asset-backed securities, broker-dealers and investment banks, but it was a classic run nonetheless.
The run made the crisis. In the 2000 tech bust, people lost a lot of money, but there was no crisis. Why not? Because tech firms were funded by stock. When stock values fall you can't run to get your money out first, and you can't take a company to bankruptcy court.
This is a vital and liberating insight: To stop future crises, the financial system needs to be reformed so that it is not prone to runs. Americans do not have to trust newly wise regulators to fix Fannie Mae and Freddie Mac, end rating-agency shenanigans, clairvoyantly spot and prick "bubbles," and address every other real or perceived shortcoming of our financial system.
Runs are a pathology of financial contracts, such as bank deposits, that promise investors a fixed amount of money and the right to withdraw that amount at any time. A run also requires that the issuing institution can't raise cash by selling assets, borrowing or issuing equity. If I see you taking your money out, then I have an incentive to take my money out too. When a run at one institution causes people to question the finances of others, the run becomes "systemic," which is practically the definition of a crisis.
By the time they failed in 2008, Lehman Brothers and Bear Stearns were funding portfolios of mortgage-backed securities with overnight debt leveraged 30 to 1. For each $1 of equity capital, the banks borrowed $30. Then, every single day, they had to borrow 30 new dollars to pay off the previous day's loans.
When investors sniffed trouble, they refused to roll over the loans. The bank's broker-dealer customers and derivatives counterparties also pulled their money out, each also having the right to money immediately, but each contract also serving as a source of short-term funding for the banks. When this short-term funding evaporated, the banks instantly failed.
Clearly, overnight debt is the problem. The solution is just as clear: Don't let financial institutions issue run-prone liabilities. Run-prone contracts generate an externality, like pollution, and merit severe regulation on that basis.
Institutions that want to take deposits, borrow overnight, issue fixed-value money-market shares or any similar runnable contract must back those liabilities 100% by short-term Treasurys or reserves at the Fed. Institutions that want to invest in risky or illiquid assets, like loans or mortgage-backed securities, have to fund those investments with equity and long-term debt. Then they can invest as they please, as their problems cannot start a crisis.
Money-market funds that want to offer better returns by investing in riskier securities must let their values float, rather than promise a fixed value of $1 per share. Mortgage-backed securities also belong in floating-value funds, like equity mutual funds or exchange-traded funds. The run-prone nature of broker-dealer and derivatives contracts can also be reformed at small cost by fixing the terms of those contracts and their treatment in bankruptcy.
The bottom line: People who want better returns must transparently shoulder additional risk.
Some people will argue: Don't we need banks to "transform maturity" and provide abundant "safe and liquid" assets for people to invest in? Not anymore.
First, $16 trillion of government debt is enough to back any conceivable demand for fixed-value liquid assets. Money-market funds that hold Treasurys can expand to enormous size. The Federal Reserve should continue to provide abundant reserves to banks, paying market interest. The Treasury could offer reserves to the rest of us—floating-rate, fixed-value, electronically-transferable debt. There is no reason that the Fed and Treasury should artificially starve the economy of completely safe, interest-paying cash.
Second, financial and technical innovations can deliver the liquidity that once only banks could provide. Today, you can pay your monthly credit-card bill from your exchange-traded stock fund. Tomorrow, your ATM could sell $100 of that fund if you want cash, or you could bump your smartphone on a cash register to buy coffee with that fund. Liquidity no longer requires that anyone hold risk-free or fixed-value assets.
Others will object: Won't eliminating short-term funding for long-term investments drive up rates for borrowers? Not much. Floating-value investments such as equity and long-term debt that go unlevered into loans are very safe and need to pay correspondingly low returns. If borrowers pay a bit more than now, it is only because banks lose their government guarantees and subsidies.
In the 19th century, private banks issued currency. A few crises later, we stopped that and gave the federal government a monopoly on currency issue. Now that short-term debt is our money, we should treat it the same way, and for exactly the same reasons.
In the wake of Great Depression bank runs, the U.S. government chose to guarantee bank deposits, so that people no longer had the incentive to get out first. But guaranteeing a bank's deposits gives bank managers a huge incentive to take risks.
So we tried to regulate the banks from taking risks. The banks got around the regulations, and "shadow banks" grew around the regulated system. Since then we have been on a treadmill of ever-larger bailouts, ever-expanding government guarantees, ever-expanding attempts to regulate risks, ever-more powerful regulators and ever-larger crises.
This approach will never work. Rather than try to regulate the riskiness of bank assets, we should fix the run-prone nature of their liabilities. Fortunately, modern financial technology surmounts the economic obstacles that impeded this approach in the 1930s. Now we only have to surmount the obstacle of entrenched interests that profit from the current dysfunctional system.
Mr. Cochrane is a professor of finance at the University of Chicago Booth School of Business, a senior fellow at the Hoover Institution, and an adjunct scholar at the Cato Institute.
Regulating the riskiness of bank assets is a dead end. Instead, fix the run-prone nature of bank liabilitiesThe Wall Street Journal, June 24, 2013, on page A19
http://online.wsj.com/article/SB10001424127887324412604578513143034934554.html
In recent months the realization has sunk in across the country that the 2010 Dodd-Frank financial-reform legislation is a colossal mess. Yet we obviously can't go back to the status quo that produced a financial catastrophe in 2007-08. Fortunately, there is an alternative.
At its core, the recent financial crisis was a run. The run was concentrated in the "shadow banking system" of overnight repurchase agreements, asset-backed securities, broker-dealers and investment banks, but it was a classic run nonetheless.
The run made the crisis. In the 2000 tech bust, people lost a lot of money, but there was no crisis. Why not? Because tech firms were funded by stock. When stock values fall you can't run to get your money out first, and you can't take a company to bankruptcy court.
This is a vital and liberating insight: To stop future crises, the financial system needs to be reformed so that it is not prone to runs. Americans do not have to trust newly wise regulators to fix Fannie Mae and Freddie Mac, end rating-agency shenanigans, clairvoyantly spot and prick "bubbles," and address every other real or perceived shortcoming of our financial system.
Runs are a pathology of financial contracts, such as bank deposits, that promise investors a fixed amount of money and the right to withdraw that amount at any time. A run also requires that the issuing institution can't raise cash by selling assets, borrowing or issuing equity. If I see you taking your money out, then I have an incentive to take my money out too. When a run at one institution causes people to question the finances of others, the run becomes "systemic," which is practically the definition of a crisis.
By the time they failed in 2008, Lehman Brothers and Bear Stearns were funding portfolios of mortgage-backed securities with overnight debt leveraged 30 to 1. For each $1 of equity capital, the banks borrowed $30. Then, every single day, they had to borrow 30 new dollars to pay off the previous day's loans.
When investors sniffed trouble, they refused to roll over the loans. The bank's broker-dealer customers and derivatives counterparties also pulled their money out, each also having the right to money immediately, but each contract also serving as a source of short-term funding for the banks. When this short-term funding evaporated, the banks instantly failed.
Clearly, overnight debt is the problem. The solution is just as clear: Don't let financial institutions issue run-prone liabilities. Run-prone contracts generate an externality, like pollution, and merit severe regulation on that basis.
Institutions that want to take deposits, borrow overnight, issue fixed-value money-market shares or any similar runnable contract must back those liabilities 100% by short-term Treasurys or reserves at the Fed. Institutions that want to invest in risky or illiquid assets, like loans or mortgage-backed securities, have to fund those investments with equity and long-term debt. Then they can invest as they please, as their problems cannot start a crisis.
Money-market funds that want to offer better returns by investing in riskier securities must let their values float, rather than promise a fixed value of $1 per share. Mortgage-backed securities also belong in floating-value funds, like equity mutual funds or exchange-traded funds. The run-prone nature of broker-dealer and derivatives contracts can also be reformed at small cost by fixing the terms of those contracts and their treatment in bankruptcy.
The bottom line: People who want better returns must transparently shoulder additional risk.
Some people will argue: Don't we need banks to "transform maturity" and provide abundant "safe and liquid" assets for people to invest in? Not anymore.
First, $16 trillion of government debt is enough to back any conceivable demand for fixed-value liquid assets. Money-market funds that hold Treasurys can expand to enormous size. The Federal Reserve should continue to provide abundant reserves to banks, paying market interest. The Treasury could offer reserves to the rest of us—floating-rate, fixed-value, electronically-transferable debt. There is no reason that the Fed and Treasury should artificially starve the economy of completely safe, interest-paying cash.
Second, financial and technical innovations can deliver the liquidity that once only banks could provide. Today, you can pay your monthly credit-card bill from your exchange-traded stock fund. Tomorrow, your ATM could sell $100 of that fund if you want cash, or you could bump your smartphone on a cash register to buy coffee with that fund. Liquidity no longer requires that anyone hold risk-free or fixed-value assets.
Others will object: Won't eliminating short-term funding for long-term investments drive up rates for borrowers? Not much. Floating-value investments such as equity and long-term debt that go unlevered into loans are very safe and need to pay correspondingly low returns. If borrowers pay a bit more than now, it is only because banks lose their government guarantees and subsidies.
In the 19th century, private banks issued currency. A few crises later, we stopped that and gave the federal government a monopoly on currency issue. Now that short-term debt is our money, we should treat it the same way, and for exactly the same reasons.
In the wake of Great Depression bank runs, the U.S. government chose to guarantee bank deposits, so that people no longer had the incentive to get out first. But guaranteeing a bank's deposits gives bank managers a huge incentive to take risks.
So we tried to regulate the banks from taking risks. The banks got around the regulations, and "shadow banks" grew around the regulated system. Since then we have been on a treadmill of ever-larger bailouts, ever-expanding government guarantees, ever-expanding attempts to regulate risks, ever-more powerful regulators and ever-larger crises.
This approach will never work. Rather than try to regulate the riskiness of bank assets, we should fix the run-prone nature of their liabilities. Fortunately, modern financial technology surmounts the economic obstacles that impeded this approach in the 1930s. Now we only have to surmount the obstacle of entrenched interests that profit from the current dysfunctional system.
Mr. Cochrane is a professor of finance at the University of Chicago Booth School of Business, a senior fellow at the Hoover Institution, and an adjunct scholar at the Cato Institute.
Friday, June 21, 2013
Macroprudential and Microprudential Policies: Towards Cohabitation. By J Osinski, K Seal, and L Hoogduin
Macroprudential and Microprudential Policies: Towards Cohabitation. By Jacek Osinski, Katharine Seal, and Lex Hoogduin
IMF Staff Discussion Note SDN13/05
June 21, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40694
Summary: Effective arrangements for micro and macroprudential policies to further overall financial stability are strongly desirable for all countries, emerging or advanced. Both policies complement each other, but there can also be potential areas of overlap and conflict, which can complicate this cooperation. Organizing their very close interactions can help contain these potential tensions. This note clarifies the essential features of macroprudential and microprudential policies and their interactions, and delineates their borderline. It proposes mechanisms for aligning both policies in the pursuit of financial stability by identifying those elements that are desirable for effective cooperation between them. The note provides general guidance. Actual arrangements will need take into account country-specific circumstances, reflecting the fact that that there is no “one size fits all.”
ISBN: 9781484369999
ISSN: 2221-030X
Executive Summary
How can policymakers promote effective cooperation between two closely related financial sector policies? This Staff Discussion Note identifies complementarities and potential conflicts between microprudential policy, which focuses on the health of individual financial institutions, and macroprudential policy, which addresses risks to the financial system as a whole.
These policies usually complement and reinforce each other in pursuit of their respective goals. For example, the health of individual institutions is a necessary, though not sufficient, condition for system-wide stability, while a stable system contributes to the health of individual institutions. In certain situations, however, conflicts may occur because of overlapping policy mandates and the way in which policies are applied.
This paper shows that the clarification of respective mandates, functions, and toolkits can help maximize synergies and limit the potentially negative consequences of policy interaction. Specifically, it is helpful to set primary and secondary policy objectives to clarify the respective responsibilities. It is also important to establish separate, but complementary, policy functions. These include supervision and enforcement (microprudential authority) as well as the identification of systemic risks and the vetting of financial regulations from a systemic risk perspective (macroprudential authority). The potential for tensions between the two policies can be further reduced by clearly assigning powers.
Tensions are more likely to occur at certain stages of the credit cycle, notably during the downturn phase and at crucial turning points. Information sharing, joint analysis of risks, and general dialogue between the microprudential and macroprudential authorities can reduce the likelihood of differences of opinion between the two. Tensions during the downturn are also less likely to occur if policymakers encourage the buildup of shock-absorbing buffers in good times, and if effective resolution mechanisms are in place that allow unviable institutions to die safely. Finally, in order to minimize the risk of misperceptions among market participants, microprudential and macroprudential authorities should establish a credible joint communication strategy that can bolster investor confidence during turbulent periods.
Certain institutional mechanisms can enhance policy cooperation and coordination. The specific features of these mechanisms often reflect country-specific circumstances. For example, if the two policy mandates are held by different entities, it will be important to establish a coordination committee. Other jurisdictions may want to award both policy mandates to a single authority. And in those cases where conflicts between the two policy objectives remain, mechanisms need to be in place to decide which policy should prevail.
This paper provides general and preliminary guidance on measures and arrangements to promote effective cooperation between both policies in their joint pursuit of financial stability. Solutions will be shaped, to a large extent, by country-specific circumstances. Moreover, some flexibility in policy design and arrangements is needed because of the stillconsiderable uncertainty about the impact of these policies and our evolving understanding of systemic risk.
IMF Staff Discussion Note SDN13/05
June 21, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40694
Summary: Effective arrangements for micro and macroprudential policies to further overall financial stability are strongly desirable for all countries, emerging or advanced. Both policies complement each other, but there can also be potential areas of overlap and conflict, which can complicate this cooperation. Organizing their very close interactions can help contain these potential tensions. This note clarifies the essential features of macroprudential and microprudential policies and their interactions, and delineates their borderline. It proposes mechanisms for aligning both policies in the pursuit of financial stability by identifying those elements that are desirable for effective cooperation between them. The note provides general guidance. Actual arrangements will need take into account country-specific circumstances, reflecting the fact that that there is no “one size fits all.”
ISBN: 9781484369999
ISSN: 2221-030X
Executive Summary
How can policymakers promote effective cooperation between two closely related financial sector policies? This Staff Discussion Note identifies complementarities and potential conflicts between microprudential policy, which focuses on the health of individual financial institutions, and macroprudential policy, which addresses risks to the financial system as a whole.
These policies usually complement and reinforce each other in pursuit of their respective goals. For example, the health of individual institutions is a necessary, though not sufficient, condition for system-wide stability, while a stable system contributes to the health of individual institutions. In certain situations, however, conflicts may occur because of overlapping policy mandates and the way in which policies are applied.
This paper shows that the clarification of respective mandates, functions, and toolkits can help maximize synergies and limit the potentially negative consequences of policy interaction. Specifically, it is helpful to set primary and secondary policy objectives to clarify the respective responsibilities. It is also important to establish separate, but complementary, policy functions. These include supervision and enforcement (microprudential authority) as well as the identification of systemic risks and the vetting of financial regulations from a systemic risk perspective (macroprudential authority). The potential for tensions between the two policies can be further reduced by clearly assigning powers.
Tensions are more likely to occur at certain stages of the credit cycle, notably during the downturn phase and at crucial turning points. Information sharing, joint analysis of risks, and general dialogue between the microprudential and macroprudential authorities can reduce the likelihood of differences of opinion between the two. Tensions during the downturn are also less likely to occur if policymakers encourage the buildup of shock-absorbing buffers in good times, and if effective resolution mechanisms are in place that allow unviable institutions to die safely. Finally, in order to minimize the risk of misperceptions among market participants, microprudential and macroprudential authorities should establish a credible joint communication strategy that can bolster investor confidence during turbulent periods.
Certain institutional mechanisms can enhance policy cooperation and coordination. The specific features of these mechanisms often reflect country-specific circumstances. For example, if the two policy mandates are held by different entities, it will be important to establish a coordination committee. Other jurisdictions may want to award both policy mandates to a single authority. And in those cases where conflicts between the two policy objectives remain, mechanisms need to be in place to decide which policy should prevail.
This paper provides general and preliminary guidance on measures and arrangements to promote effective cooperation between both policies in their joint pursuit of financial stability. Solutions will be shaped, to a large extent, by country-specific circumstances. Moreover, some flexibility in policy design and arrangements is needed because of the stillconsiderable uncertainty about the impact of these policies and our evolving understanding of systemic risk.
Monday, June 17, 2013
Finance and Poverty: Evidence from India. By Meghana Ayyagari & Thorsten Beck
Finance and Poverty: Evidence from India. By Meghana Ayyagari & Thorsten Beck
World Bank Blogs
Mon, Jul 17, 2013
http://blogs.worldbank.org/allaboutfinance/finance-and-poverty-evidence-india
The relationship between finance, inequality and poverty is a controversial one. While some observers attribute not only the crisis but also rising inequality in many Western countries to the rise of the financial system (e.g. Krugman, 2009), others see an important role of the financial sector on the poverty alleviation agenda (World Bank, 2008). But financial sector policies are not only controversial on the macro, but also micro-level. While increasing access to credit services through microfinance had for a long time a positive connotation, this has also been questioned after recent events in Andhra Pradesh, with critics charging that excessive interest rates hold the poor back in poverty. In recent work with Meghana Ayyagari and Mohammad Hoseini, we find strong evidence for financial sector deepening having contributed to the reduction of rural poverty rates across India by enabling more entrepreneurship in the rural areas and by enticing inter-state migration into the tertiary sector.
Cross-country evidence has linked financial development both to lower levels and faster reductions in income inequality and poverty rates (Beck, Demirguc-Kunt and Levine, 2007; Clarke, Xu and Zhou, 2006). As is often the case with cross-country work, endogeneity concerns are manifold, exacerbated by measurement problems inherent to survey-based inequality and poverty measures. In addition, cross-country comparisons face limitations in identifying the channel through which financial deepening helps reduce poverty rates. Researchers have therefore turned to country-level studies, which allow better to control for omitted variable and measurement biases. Richer data on the country level also allow for a better exploration of channels through which finance affects inequality and poverty.
India is close to an ideal testing ground to ask these questions given not only its large sub-national variation in socio-economic and institutional development, but also significant policy changes it has experienced over the sample period (Besley, Boswell and Esteve-Vollart, 2007). We use two of these policy changes as identification strategies in our work. Specifically, we follow Burgess and Pande (2005) and exploit the policy driven nature of rural bank branch expansion across Indian states as an instrument for branch penetration and thus financial breadth. According to the Indian Central Bank’s 1:4 licensing policy instituted between 1977 and 1990, commercial banks in India had to open four branches in rural unbanked locations for every branch opening in an already banked location. Thus between 1977 and 1990, rural bank branch expansion was higher in financially less developed states while after 1990, the reverse was true (financially developed states offered more profitable locations and so attracted more branches outside of the program), as illustrated by Figure 1.
As an instrument for financial depth, we use the cross-state variation of per-capita circulation of English-language newspapers in 1991 multiplied by a time trend to capture the differential impact of the media across time after liberalization in 1991. With the relatively free and independent press in India (Besley and Burgess, 2002), a more informed public is better able to compare different financial services, resulting in more transparency and a higher degree of competition leading to greater financial sector development. Figure 2 shows the differential development of Credit to SDP in states with English language newspaper penetration above and below the median.
Our main findings
Relating annual state-level variation in poverty to variation in financial development, we find strong evidence that financial depth, as measured by Credit to SDP, has a negative and significant impact on rural poverty in India over the period 1983-2005. On the other hand, we find no effect of financial depth on urban poverty rates. The effect of financial depth on rural poverty reduction is also economically meaningful. One within-state, within-year standard deviation in Credit to SDP explains 18 percent of demeaned variation in the Headcount and 30 percent of demeaned variation in the Poverty Gap over our sample period. We also find that over the time period 1983-2005, financial depth has a more significant impact on poverty reduction than financial outreach. Our measure of financial breadth, rural branches per capita, has a negative but insignificant effect on rural poverty over this period, though a strong and negative effect over the longer period of 1965 to 2005, which includes the complete period of the social banking policy.
The channels
The household data also allow us to dig deeper into the channels through which financial deepening affected poverty rates across rural India. First, we find evidence for the entrepreneurship channel, as the poverty-reducing impact of financial deepening falls primarily on self-employed in rural areas. Second, we find that financial sector development is associated with inter-state migration of workers towards financially more developed states. The migration induced by financial deepening is motivated by search for employment, suggesting that poorer population segments in rural areas migrated to urban areas. The rural primary and tertiary urban sectors benefitted most from this migration, consistent with evidence showing that the Indian growth experience has been led by the services sector rather than labor intensive manufacturing (Bosworth, Collins and Virmani, 2007)
This last finding is also consistent with the finding that it is specifically the increase in bank credit to the tertiary sector that accounts for financial deepening post-1991 and its poverty-reducing effect.
Conclusions
Our findings suggest that financial deepening can have important structural effects, including through structural reallocation and migration, with consequences for poverty reduction. Our findings also have important policy repercussions. The pro-poor effects of financial deepening do not necessarily come just through more inclusive financial systems, but can also come through more efficient and deeper financial systems. Critical, the poorest of the poor not only benefit from financial deepening by directly accessing financial services, but also through indirect structural effects of financial deepening. This is consistent with evidence from Thailand (Gine and Townsend, 2004) and for the U.S. (Beck, Levine and Levkov, 2010) who document important labor market and migration effects of financial liberalization and deepening.
References
World Bank Blogs
Mon, Jul 17, 2013
http://blogs.worldbank.org/allaboutfinance/finance-and-poverty-evidence-india
The relationship between finance, inequality and poverty is a controversial one. While some observers attribute not only the crisis but also rising inequality in many Western countries to the rise of the financial system (e.g. Krugman, 2009), others see an important role of the financial sector on the poverty alleviation agenda (World Bank, 2008). But financial sector policies are not only controversial on the macro, but also micro-level. While increasing access to credit services through microfinance had for a long time a positive connotation, this has also been questioned after recent events in Andhra Pradesh, with critics charging that excessive interest rates hold the poor back in poverty. In recent work with Meghana Ayyagari and Mohammad Hoseini, we find strong evidence for financial sector deepening having contributed to the reduction of rural poverty rates across India by enabling more entrepreneurship in the rural areas and by enticing inter-state migration into the tertiary sector.
Cross-country evidence has linked financial development both to lower levels and faster reductions in income inequality and poverty rates (Beck, Demirguc-Kunt and Levine, 2007; Clarke, Xu and Zhou, 2006). As is often the case with cross-country work, endogeneity concerns are manifold, exacerbated by measurement problems inherent to survey-based inequality and poverty measures. In addition, cross-country comparisons face limitations in identifying the channel through which financial deepening helps reduce poverty rates. Researchers have therefore turned to country-level studies, which allow better to control for omitted variable and measurement biases. Richer data on the country level also allow for a better exploration of channels through which finance affects inequality and poverty.
India is close to an ideal testing ground to ask these questions given not only its large sub-national variation in socio-economic and institutional development, but also significant policy changes it has experienced over the sample period (Besley, Boswell and Esteve-Vollart, 2007). We use two of these policy changes as identification strategies in our work. Specifically, we follow Burgess and Pande (2005) and exploit the policy driven nature of rural bank branch expansion across Indian states as an instrument for branch penetration and thus financial breadth. According to the Indian Central Bank’s 1:4 licensing policy instituted between 1977 and 1990, commercial banks in India had to open four branches in rural unbanked locations for every branch opening in an already banked location. Thus between 1977 and 1990, rural bank branch expansion was higher in financially less developed states while after 1990, the reverse was true (financially developed states offered more profitable locations and so attracted more branches outside of the program), as illustrated by Figure 1.
Figure 1: Bank branch penetration as function
of initial financial development
of initial financial development
As an instrument for financial depth, we use the cross-state variation of per-capita circulation of English-language newspapers in 1991 multiplied by a time trend to capture the differential impact of the media across time after liberalization in 1991. With the relatively free and independent press in India (Besley and Burgess, 2002), a more informed public is better able to compare different financial services, resulting in more transparency and a higher degree of competition leading to greater financial sector development. Figure 2 shows the differential development of Credit to SDP in states with English language newspaper penetration above and below the median.
Figure 2: Bank Credit and English newspaper circulation
Our main findings
Relating annual state-level variation in poverty to variation in financial development, we find strong evidence that financial depth, as measured by Credit to SDP, has a negative and significant impact on rural poverty in India over the period 1983-2005. On the other hand, we find no effect of financial depth on urban poverty rates. The effect of financial depth on rural poverty reduction is also economically meaningful. One within-state, within-year standard deviation in Credit to SDP explains 18 percent of demeaned variation in the Headcount and 30 percent of demeaned variation in the Poverty Gap over our sample period. We also find that over the time period 1983-2005, financial depth has a more significant impact on poverty reduction than financial outreach. Our measure of financial breadth, rural branches per capita, has a negative but insignificant effect on rural poverty over this period, though a strong and negative effect over the longer period of 1965 to 2005, which includes the complete period of the social banking policy.
The channels
The household data also allow us to dig deeper into the channels through which financial deepening affected poverty rates across rural India. First, we find evidence for the entrepreneurship channel, as the poverty-reducing impact of financial deepening falls primarily on self-employed in rural areas. Second, we find that financial sector development is associated with inter-state migration of workers towards financially more developed states. The migration induced by financial deepening is motivated by search for employment, suggesting that poorer population segments in rural areas migrated to urban areas. The rural primary and tertiary urban sectors benefitted most from this migration, consistent with evidence showing that the Indian growth experience has been led by the services sector rather than labor intensive manufacturing (Bosworth, Collins and Virmani, 2007)
This last finding is also consistent with the finding that it is specifically the increase in bank credit to the tertiary sector that accounts for financial deepening post-1991 and its poverty-reducing effect.
Conclusions
Our findings suggest that financial deepening can have important structural effects, including through structural reallocation and migration, with consequences for poverty reduction. Our findings also have important policy repercussions. The pro-poor effects of financial deepening do not necessarily come just through more inclusive financial systems, but can also come through more efficient and deeper financial systems. Critical, the poorest of the poor not only benefit from financial deepening by directly accessing financial services, but also through indirect structural effects of financial deepening. This is consistent with evidence from Thailand (Gine and Townsend, 2004) and for the U.S. (Beck, Levine and Levkov, 2010) who document important labor market and migration effects of financial liberalization and deepening.
References
- Ayyagari, M., T. Beck and M. Hoseini (2013) “Finance and Poverty: Evidence from India”, CEPR Discussion Paper 9497.
- Beck, T., A. Demirgüç-Kunt and R. Levine, (2007) “Finance, Inequality and the Poor”, Journal of Economic Growth, 12(1), 27-49.
- Beck, T., R. Levine and A. Levkov (2010), “Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States”, Journal of Finance, vol. 65(5), pages 1637-1667.
- Besley, T., and R. Burgess, (2002) “The Political Economy Of Government Responsiveness: Theory And Evidence From India”, Quarterly Journal of Economics 117(4), pages 1415-1451.
- Besley, T., R. Burgess, and B. Esteve-Volart (2007) “The Policy Origins of Poverty and Growth in India,” Chapter 3 in Delivering on the Promise of Pro-Poor Growth: Insights and Lessons from Country Experiences, edited with Timothy Besley and Louise J. Cord, Palgrave MacMillan for the World Bank.
- Bosworth, B., Collins, S. and Virmani, A. (2007), “Sources of Growth in the Indian Economy”, in Bery, S., Bosworth, B. and Panagariya, A. (eds.), India Policy Forum, 2006-07, Washington, DC: Brookings Institution Press.
- Burgess, R., and R. Pande (2005), “Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment”, American Economic Review, vol. 95(3), pages 780-795.
- Clarke, G., L. C. Xu and H. Zhou, (2006) “Finance and Income Inequality: What Do the Data Tell Us?”, Southern Economic Journal vol. 72(3), pages 578-596.
- Gine, X. and R. Townsend (2004) “Evaluation of financial liberalization: a general equilibrium model with constrained occupation choice”, Journal of Development Economics 74, 269-307.
- Krugman, Paul, (2009), The financial factor.
- World Bank (2008): Finance for All? Policies and Pitfalls in Expanding Access. Washington DC.
Thursday, June 13, 2013
Interact with people. Advise from Jean Adams, statistician
1 Master's Notebook: Not Everything That Counts Can Be Counted. By Jean Adams
AmStat News, Mar 1, 2013
http://magazine.amstat.org/blog/2013/
[...]
People
Humans. They’re a strange bunch. Incredibly varied and unbelievably complicated. Like it or not, these creatures will play a huge role in your life and in your career. Anything you can do to understand them better, do it. In school? Take a psychology course. On the job? Take a management course on personality types or communication skills. Been there done that? Please. Don’t make me laugh. When it comes to human nature, there’s always room to learn more.
Connect with the people around you. Consciously put yourself in situations in which you will interact with the members of your community, be it at school or work. Is someone approaching you in the hallway? Look him in the eye and say hello. Is your room or office located at the far end of the building, near a remote entrance? Make a habit of entering the building at the main entrance. Is there a group that goes bowling every Friday? Go with them. Have a question for a colleague down the hall? Ask her in person. Is there a brown bag group that eats in the break room? Eat with them. Think of it as an optimization problem. You want to maximize your daily face time.
Unless you are gregarious by nature, these suggestions may take you a bit out of your comfort zone. That makes it all the more important. And it’s okay to experience some discomfort. You will get better with practice. And let me tell you a secret. Connecting with the people around you will do wonders for your career. It will open doors; it will bring you joy. It will reward you with an intangible quality that no one verbalizes, but everyone perceives.
Find your passion. Connect with people. That’s my recipe for a long and happy career.
2 Master's Notebook: Seeing Is Believing. By Jean Adams
AmStat News, Jun 1, 2013
http://magazine.amstat.org/AmStat News, Mar 1, 2013
http://magazine.amstat.org/blog/2013/
[...]
People
Humans. They’re a strange bunch. Incredibly varied and unbelievably complicated. Like it or not, these creatures will play a huge role in your life and in your career. Anything you can do to understand them better, do it. In school? Take a psychology course. On the job? Take a management course on personality types or communication skills. Been there done that? Please. Don’t make me laugh. When it comes to human nature, there’s always room to learn more.
Connect with the people around you. Consciously put yourself in situations in which you will interact with the members of your community, be it at school or work. Is someone approaching you in the hallway? Look him in the eye and say hello. Is your room or office located at the far end of the building, near a remote entrance? Make a habit of entering the building at the main entrance. Is there a group that goes bowling every Friday? Go with them. Have a question for a colleague down the hall? Ask her in person. Is there a brown bag group that eats in the break room? Eat with them. Think of it as an optimization problem. You want to maximize your daily face time.
Unless you are gregarious by nature, these suggestions may take you a bit out of your comfort zone. That makes it all the more important. And it’s okay to experience some discomfort. You will get better with practice. And let me tell you a secret. Connecting with the people around you will do wonders for your career. It will open doors; it will bring you joy. It will reward you with an intangible quality that no one verbalizes, but everyone perceives.
Find your passion. Connect with people. That’s my recipe for a long and happy career.
2 Master's Notebook: Seeing Is Believing. By Jean Adams
AmStat News, Jun 1, 2013
[...]
Pay It Forward
Have you ever had your work improved by the comments of a good reviewer? Have you ever benefited from the sage advice of a mentor? Have you ever gotten stuck trying a new analysis or software and turned to Internet forums to get unstuck? Of course you have. We all have. We are surrounded by people willing to help, including some we have never met. Don’t hesitate to ask for assistance. If you choose your target wisely and clearly state your question, you will be rewarded for your efforts. I find that just the process of framing the question for someone else brings some answers to light.
Have you ever been on the other side? Reviewed someone else’s work? Advised a protégé? Answered questions on an Internet forum? If not, give it a try. You may be surprised to discover that you get as much out of the interaction as the person you’re helping. It can be quite gratifying, and there’s always something to learn. As every teacher knows, the best way to really understand a subject is to try to explain it to someone else.
No matter how much experience you have, there’s always someone with more experience from whom you can learn, and there’s always someone with less experience who could benefit from your help.
[...]
Jean Adams is a statistician with the U.S. Geological Survey – Great Lakes Science Center and the Great Lakes Fishery Commission, both headquartered in Ann Arbor, Michigan
Pay It Forward
Have you ever had your work improved by the comments of a good reviewer? Have you ever benefited from the sage advice of a mentor? Have you ever gotten stuck trying a new analysis or software and turned to Internet forums to get unstuck? Of course you have. We all have. We are surrounded by people willing to help, including some we have never met. Don’t hesitate to ask for assistance. If you choose your target wisely and clearly state your question, you will be rewarded for your efforts. I find that just the process of framing the question for someone else brings some answers to light.
Have you ever been on the other side? Reviewed someone else’s work? Advised a protégé? Answered questions on an Internet forum? If not, give it a try. You may be surprised to discover that you get as much out of the interaction as the person you’re helping. It can be quite gratifying, and there’s always something to learn. As every teacher knows, the best way to really understand a subject is to try to explain it to someone else.
No matter how much experience you have, there’s always someone with more experience from whom you can learn, and there’s always someone with less experience who could benefit from your help.
[...]
Jean Adams is a statistician with the U.S. Geological Survey – Great Lakes Science Center and the Great Lakes Fishery Commission, both headquartered in Ann Arbor, Michigan
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