February 16, 2012
JLN Interest Rates - http://www.jlninterestrates.com
Conversation Starter
Excerpts: Steven B. Kamin, Director, Division of International Finance
The European Financial Situation
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.
February 16, 2012
***For two years now, developments in Europe have played a critical role in shaping the tenor of global financial markets. The combination of high debts, large deficits, and poor growth prospects in several European countries using the euro has raised concerns about their fiscal sustainability. Such concerns were initially focused on Greece but have since spread to a number of other euro-area countries, leading to substantial increases in their sovereign borrowing costs. Pessimism about these countries' fiscal situation, in turn, has helped to undermine confidence in the strength of European financial institutions, increasing the institutions' borrowing costs and threatening to curtail their supply of credit. These developments have strained global financial markets and weighed on global economic activity.
***The changes in swap arrangements --have had some positive effects on dollar funding markets. Since the announcement of the changes at the end of November, the outstanding amount of dollar funding through the swap lines has increased substantially, to more than $100 billion, and several measures of the cost of dollar funding have declined.
That being said, many financial institutions, especially those from Europe, continue to find it difficult and costly to acquire dollar funding, in large part because investors remain uncertain about Europe's economic and financial prospects. Ultimately, the easing of strains in U.S. and global financial markets will require concerted action on the part of European authorities as they follow through on their announced plans to address their fiscal and financial difficulties. The situation in Europe is continuously evolving. Thus, we are closely monitoring events in the region and their spillovers to the U.S. economy and financial system.
See the full speech here.
Lead Stories
Big Banks Expected Fed to Keep Rates Low Longer
WSJ.com
Ahead of the last Federal Reserve meeting, Wall Street’s biggest banks expected the central bank to lengthen the period it saw interest rate rates staying very low, although not by as much as the Fed actually delivered. In a survey of the primary dealer banks that serve as counterparties to Fed market interventions, the median projection of the banks was that the Fed will raise interest rates in the second quarter of 2014. The survey of dealers was conducted in advance of the Jan. 24-25 Federal Open Market Committee. Dealers got the questions on Jan. 12, with the responses received by Jan. 17.
http://jlne.ws/woiILz
Federal Reserve Open Market Committee Meeting Minutes for Jan. 25 (Text)
Bloomberg
Following are the minutes of the Federal Reserve's Open Market Committee meeting that concluded on January 25.
http://jlne.ws/yjAVhI
Federal Reserve minutes show members divided over bond buys
Los Angeles Times
The Federal Reserve appears open to the idea of a third round of bond purchases to boost a still-modest recovery. But members remain divided over when or whether to take that step.
http://jlne.ws/AvQKzq
Moodys Unveils Broad Ratings Review of Major Banks
By JULIA WERDIGIER - NY Times
LONDON Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS and more than 100 other financial institutions might have their credit ratings cut by Moody’s Investors Service because of increasingly challenging market conditions.
http://jlne.ws/xIykdJ
Federal Reserve Board Approves Capital One Plan To Buy ING Bank
Nasdaq
http://jlne.ws/xbNZYZ
Fed Bond Purchase Option Kept in Reserve as Officials Weigh Data
BusinessWeek
Federal Reserve officials are keeping open the option of a third round of bond purchases in case the economy weakens or inflation stays low.
http://jlne.ws/y7KerZ
**CN: Policy makers willing to wait for evidence of weakness in the economy before taking further action are probably in the majority says a former senior staff economist in the central bank’s division of monetary affairs.
Fed Bond Purchase Option Kept in Reserve as Officials Weigh Data
BusinessWeek
Federal Reserve officials are keeping open the option of a third round of bond purchases in case the economy weakens or inflation stays low.
http://jlne.ws/y7KerZ
Federal Reserve Unlikely to Buy More Assets
New York Times
Minutes of the Jan. 24-25 meeting of the policy group show that the central bank continued to predict only modest economic growth this year.
http://jlne.ws/yV3B7g
Bernanke says community banks have strengthened
Associated Press via Yahoo! News
Federal Reserve Chairman Ben Bernanke said Thursday that the health of the nation's community banks has strengthened, despite what he described as a frustratingly slow economic recovery.
http://jlne.ws/yZiDRM
Fed's Tri-Party Repo Group Says More Work Needed on Dealer Funding Reforms
Bloomberg
A Federal Reserve-sponsored advisory panel formed to help devise ways to reduce risks and improve the efficiency of the market for borrowing and lending securities said further work was needed as the group concluded its efforts.
http://jlne.ws/AibWE3
Federal Reserve minutes show members divided over bond buys
Los Angeles Times
The Federal Reserve appears open to the idea of a third round of bond purchases to boost a still-modest recovery. But members remain divided over when or whether to take that step.
http://jlne.ws/AvQKzq
Zoellick to leave World Bank
By Alan Beattie in Washington - Financial Times
Robert Zoellick, president of the World Bank since 2007, announced on Wednesday he would step down when his current term ends on June 30. His departure will start a battle for a prized position that has traditionally been in the gift of the US but for which an emerging market candidate may make a bid.
http://jlne.ws/wTbZEx
The Federal Reserve's Explicit Goal: Devalue The Dollar 33%
Business Insider
The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years.
http://jlne.ws/xDYJBB
New York Fed to Take More Direct Role in Repo Market
Wall Street Journal Blogs
At issue is the state of the triparty repo market. This sector is the backbone of bond trading and its high-volume trades are very short term in nature. Since the financial crisis, the market has been beset by problems, among them issues with the documentation of trades.
http://jlne.ws/wKIuF7
Student Loans Near $1 Trillion Hurting Young Buyers: Mortgages
BusinessWeek
Roshell Schenck has a PhD in pharmacy and earns $125,000 a year, yet can't qualify for a mortgage for a house for herself and her 9-year-old daughter. The 2008 graduate of Lake Erie College of Osteopathic Medicine, in Erie, Pennsylvania, has more than $110,000 in student debt.
http://jlne.ws/xwFLrF
U.S TIC Flows
International Business Times
The U.S Department of the Treasury released the TIC flows for the month of December, where total Net TIC Flows rose to $87.1 billion, from a revised estimate of $42.9 billion. Net long -term TIC flows fell to $17.9 billion in December, down from a revised estimate of $61.3 billion and median estimate.
http://jlne.ws/Aupmhc
Broadway Financial Enters Definitive Agreement With U.S. Treasury Department
Business Wire
LOS ANGELES--(BUSINESS WIRE)--Broadway Financial Corporation (NasdaqCM:BYFC), the holding company of Broadway Federal Bank, f.s.b., today announced it has entered into an agreement with the U.S. Department of the Treasury (the "Treasury") pursuant to which the Treasury will exchange its Series D and E preferred stock in the Company for new common stock.
http://jlne.ws/zQTu7n
Treasury says it can skimp and save
UPI
WASHINGTON, Feb. 13 (UPI) -- U.S. Treasury Secretary Timothy Geither touted the department's proposed budget allocation as an effort to be thrifty, but also create jobs.
http://jlne.ws/wPqjBp
China's U.S. Mortgage Buying May Be Bet on QE3, Nomura Says
BusinessWeek
Chinese investors added U.S. government-backed mortgage securities and so-called agency debentures in December, signaling the country may be anticipating further purchases of housing debt by the Federal Reserve, according to Nomura Securities International analysts.
http://jlne.ws/yKqr4B
Foreign demand for US Treasury debt declines
Channel 8 San Diego
Foreign demand for U.S. Treasury debt fell slightly in December after hitting a record high the previous month.
http://jlne.ws/xtguPo
ECB Following US Lead in Handling Greece: Ross
CNBC
European policymakers are taking a page from their American counterparts in dealing with their sovereign debt crisis, a development that vulture investor Wilbur Ross considers positive.
http://jlne.ws/yIRwgg
Pimco: Foreclosure Deal Cheap for Banks
Bloomberg
In what the U.S. called the largest federal-state civil settlement in the nation's history, five banks including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) yesterday committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments.
http://jlne.ws/ynKseT
Gross Buys Treasuries as Buffett Says Bonds Are 'Dangerous'
BusinessWeek
Pacific Investment Management Co.'s Bill Gross increased his holdings of Treasuries to the highest level since July 2010, while billionaire investor Warren Buffett called them "dangerous."
http://jlne.ws/wdWkFK
Simon Johnson: Paul Volcker vs. the Bank of Canada
New York Times
In opposing an American regulation limiting banks' proprietary trading, the Canadian central bank recommends an approach that would seriously undermine financial stability in the United States, Canada and other countries, an economist writes.
http://jlne.ws/zcPejl
The Volcker Rule's Unusual Critics
New York Times
While Wall Street is the chief critic of the rule, which bans banks from trading with their own money, the financial industry is finding sympathy from some unexpected quarters, including the owners of Red Lobster, Macy's and Safeway.
http://jlne.ws/w1I5We
CME Group Asks Regulators to Exempt Futures From Volcker Rule
By Matthew Leising
Feb. 15 (Bloomberg) -- CME Group Inc. is asking regulators to include futures contracts in a list of exempted investments that won’t be prohibited under the Volcker rule’s limits on proprietary trading. [...] Leaving futures contracts off the list probably was “inadvertent,” CME Group Chief Executive Officer Craig Donohue wrote to regulators in a Feb. 13 letter.
Woman Saves Baby as Car Hits House
http://jlne.ws/yeECdS
**CN: Not about rates, but so brightly shines a good deed in a weary world.
Events
Retail Banking in Europe
March 13 and 14, 2012
Marketforce And The IEA’s 13th Annual Conference
http://jlne.ws/wNoXDO
ISDA 27th Annual General Meeting
April 30 - May 2, 2012
Only ISDA Members Eligible To Attend
http://jlne.ws/yrvU5E
48th Annual Conference on Bank Structure and Competition
May 9 - May 11, 2012
Annual Conference On Bank Structure
http://jlne.ws/xwqkLK
Firms & Banks
State Street Launches SwapEx Initiative, Significantly Expanding End-to-End Derivatives Solution
Business Wire via Yahoo! Finance
State Street Corporation , one of the world's leading providers of financial services to institutional investors, today announced the expansion of its end-to-end derivatives solution to include an execution platform for the trading of derivatives products.
http://jlne.ws/A1XnxN
Ex-Citigroup Trader Denies Wrongdoing in Tibor Probe
BusinessWeek
An ex-Citigroup Inc. executive accused in a probe by Japanese regulators of suspected interest- rate manipulation denied wrongdoing and said authorities never questioned him before they issued findings.
http://jlne.ws/ySLbUl
UBS suspends traders in Libor probe
By Megan Murphy and Cynthia O’Murchu - Financial Times
UBS has suspended some of its most senior traders in connection with an international probe into the possible manipulation of interbank borrowing rates, in the latest controversy to hit the Swiss bank since the financial crisis.
http://jlne.ws/yEaO5Z
Wanted to Buy: MF Global Claims
By DAN STRUMPF - WSJ
Since MF Global Holdings Ltd. filed for bankruptcy protection last year, some customers of its failed brokerage have had little choice but to wait for the full return of their cash. That is beginning to change. Lately, investors that gobble up claims in bankruptcy or other distressed situations have begun approaching former MF Global customers with offers to buy their claims for cash, at a discount.
http://jlne.ws/zLvyhi
Citigroup Mortgage Unit to Pay $158.3 Million in Settlement
BusinessWeek
Citigroup Inc.'s Citimortgage unit agreed to pay $158.3 million to settle claims tied to its actions in a federal home-loan insurance program, the Manhattan U.S. Attorney's office said.
http://jlne.ws/AmbSdT
Deutsche Bank Sued in New York Over $512 Million in Mortgage Securities
Bloomberg
Deutsche Bank AG's Ace Securities was sued in New York state court for fraud for allegedly misrepresenting the quality of $512 million worth of residential mortgage-backed securities by Phoenix Light SF Ltd.
http://jlne.ws/yzWt1h
Morgan Stanley and Citi face losses on block trades
By Robin Wigglesworth, Capital Markets Correspondent - Financial Times
Morgan Stanley and Citigroup face potentially painful losses on two recent European share sales that went awry, highlighting the dangers of the currently aggressive bidding by banks for so-called ‘block trade’ work.
http://jlne.ws/Akb3Vn
Regulators
Atlanta Federal Reserve President On Valentine's Day: U.S. Economy Has Been 'Rather Frisky Lately'
The Huffington Post
Here's the Federal Reserve wishing you a Happy Valentine's Day.
http://jlne.ws/zSWIjF
Kocherlakota's priority: Federal Reserve transparency
MinnPost
Narayana Kocherlakota describes himself as a "pro-transparency" kind of guy. In the 28 months since he became president of the Federal Reserve Bank of Minneapolis, the affable former economics professor has given 39 speeches and issued 21 papers or policy statements, far outpacing his predecessor.
http://jlne.ws/zzhueU
Williams Says Fed Should Keep U.S. Monetary Throttle Wide Open
BusinessWeek
Federal Reserve Bank of San Francisco President John Williams said the U.S. central bank should keep trying to boost growth because it's missing its goals for employment and price stability, while stopping short of calling for more asset purchases for now.
http://jlne.ws/yJmHEs
Fed's Tarullo Abstains on Vote to Back Statement of Principles
Wall Street Journal Blogs
Not everyone at last month's Federal Open Market Committee signed off on the central bank's new statement of principles.
http://jlne.ws/xSeTdD
Dallas Fed President Fisher says more easing may be harmful
http://jlne.ws/zignz0 via Yahoo! Finance
Additional monetary accommodation may only fuel inflation fears, said Fed President Richard Fisher in a speech today, according to a transcript.
http://jlne.ws/xWR3dr
Nicaragua Central Bank Head Quits Amid Alba Spat With Ortega
BusinessWeek
Nicaragua's Central Bank President Antenor Rosales quit following a disagreement with President Daniel Ortega over the use of foreign currency reserves to fund a regional bank for the Venezuelan-led bloc of eight nations known as Alba.
http://jlne.ws/xBCzvL
Global News
BOJ signals more aggressive policy, sets inflation goal
Hartford Courant
TOKYO (Reuters) - The Bank of Japan boosted its asset buying program by $130 billion on Tuesday and in the face of political pressure set an inflation goal of 1 percent, signaling a more aggressive monetary policy to pull an ailing economy out of deflation.
http://jlne.ws/zKcB4K
Brazil's Economic Activity Rises in December for Second Straight Month
Bloomberg
Brazil's economy expanded in December for the second straight month, adding to evidence that Latin America's biggest economy recovered from a third-quarter contraction.
http://jlne.ws/xLHq2h
Sweden's Central Bank Cuts Main Rate to Ward Off Recession
BusinessWeek
Sweden's central bank cut its benchmark interest rate for a second consecutive meeting to prevent the largest Nordic economy from falling into a recession as Europe's debt crisis erodes export demand.
http://jlne.ws/AbIJec
Central Bank's Occupy policy enrages local business owners
Irish Central
Central Bank Governor Patrick Honohan angered business owners after saying last week that while he didn't welcome the Dame Street protesters, he had no plans to take action against them.
http://jlne.ws/AmxKfg
Ghana c.bank hikes rates, cites euro zone
Reuters via Yahoo! News
ACCRA (Reuters) - The Bank of Ghana's Monetary Policy Committee announced a one percentage point increase to 13.5 percent in its prime lending rate on Wednesday, the first hike in three years, citing risks from the euro zone debt crisis and currency volatility.
http://jlne.ws/zbk9Wj
Norway Policy Dilemma Pits House Debt Against Krone 'Headache'
BusinessWeek
Norway's overheated credit and property markets are vying with export-eroding krone gains for policy makers' attentions as officials risk fueling either an asset bubble or currency appreciation.
http://jlne.ws/wIKjv1
French banks' central bank liabilities hit
Reuters via Yahoo! News
PARIS (Reuters) - French banks' liabilities with the Bank of France hit a record high of 218 billion euros in December, of which 119.6 billion was used for monetary policy, the central bank said on Tuesday.
http://jlne.ws/xRWNs2
British Central Bank Sees 'Zigzag' Growth
New York Times
http://jlne.ws/xc44cM
Riksbank Cuts Repo Rate Amid European Woes
Nasdaq
http://jlne.ws/zADnsT
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