Mostrando entradas con la etiqueta Sistema financiero. Mostrar todas las entradas
Mostrando entradas con la etiqueta Sistema financiero. Mostrar todas las entradas
viernes, 21 de junio de 2013
martes, 18 de junio de 2013
martes, 9 de abril de 2013
domingo, 31 de marzo de 2013
miércoles, 13 de febrero de 2013
Sobre el origen del dinero
The Economist y Cullen Roche
"Most of what we call money is actually short-term debt created by banks when they make loans. This means that banks are the stewards of our savings and manage the payments system. As a result, they have a privileged place in our society: governments never deliberately choose to liquidate the banking system. It always appears preferable, in the short term at least, to preserve the incumbent institutions and personnel through bail-outs. (Lending to “solvent but illiquid” firms at below-market rates is another kind of bail-out, even if it is not always called one by the authorities.)
I think it’s incredibly important to understand that first point. Almost all of what we call “money” today is created by banks out of thin air. The government has essentially outsourced money creation to an oligopoly of private entities. This might sound ludicrous, but it’s largely in keeping with the capitalist nature and democratic foundings of the American system. That is, the money supply is controlled not by the government, but by the private sector. And the entities that distribute this money must compete for our business. The alternative is having the government distribute all money in some fashion.
Of course, the problem with this design is that private banks are driven purely by the profit motive. So, this capitalist design can be both beneficial, but inherently unstable as banks have a tendency to reach out on the risk curve. It’s the old Hyman Minsky “stability creates instability” thing. So you have a serious conflict of interests here. The banks issue and dominate the social construct that is OUR money. And their involvement in the stability of that social construct is essential as they maintain the payments system. But the profit motive leads them to do silly things at times which leads to systemic instability."
Más de The Economist
"Most of what we call money is actually short-term debt created by banks when they make loans. This means that banks are the stewards of our savings and manage the payments system. As a result, they have a privileged place in our society: governments never deliberately choose to liquidate the banking system. It always appears preferable, in the short term at least, to preserve the incumbent institutions and personnel through bail-outs. (Lending to “solvent but illiquid” firms at below-market rates is another kind of bail-out, even if it is not always called one by the authorities.)
I think it’s incredibly important to understand that first point. Almost all of what we call “money” today is created by banks out of thin air. The government has essentially outsourced money creation to an oligopoly of private entities. This might sound ludicrous, but it’s largely in keeping with the capitalist nature and democratic foundings of the American system. That is, the money supply is controlled not by the government, but by the private sector. And the entities that distribute this money must compete for our business. The alternative is having the government distribute all money in some fashion.
Of course, the problem with this design is that private banks are driven purely by the profit motive. So, this capitalist design can be both beneficial, but inherently unstable as banks have a tendency to reach out on the risk curve. It’s the old Hyman Minsky “stability creates instability” thing. So you have a serious conflict of interests here. The banks issue and dominate the social construct that is OUR money. And their involvement in the stability of that social construct is essential as they maintain the payments system. But the profit motive leads them to do silly things at times which leads to systemic instability."
Más de The Economist
martes, 22 de enero de 2013
lunes, 7 de enero de 2013
lunes, 17 de septiembre de 2012
lunes, 6 de agosto de 2012
The danger of repo
Felix Salmon
This is exactly wrong. Repos are a form of informationally-insensitive asset: they epitomize the paradoxical and ultimately destructive desire on the part of people with money to lend out money but to take no credit risk while doing so. Informationally-insensitive assets are a bad idea in general, for reasons which are probably familiar at this point to most readers of this blog: they breed complacency, tail risk, and deluded, magical thinking. But repos are a particularly bad species of the genus, because they are a direct replacement for old-fashioned unsecured credit.
Lending money in return for interest on that money is a form of investing: one entity, with money to spare, invests that money in a venture which can put it to good use and profit from it. If all goes according to plan, both win. The borrower might be poor but has ideas, and the ability to make money in the future; the investor makes such profits possible.
When you move from a credit-based system to a repo-based system, however, all that changes. At that point, future profitability isn’t enough to get you cash: instead, you need to be rich already, and you need to be able to hypothecate your existing assets to some lender. If we’re talking about the banking system, here, we’re talking about a world in which banks simply cease to trust each other at all, and the answer to all interbank credit questions is “no”. The only way for banks to lend to each other is to either go through some central counterparty, hub-and-spoke style, or else to retreat to the world of repo, where banking prowess counts for nothing and all that matters is collateral quality.
The implications of such a world are already being seen: Tett says that “collateral arbitrage” has now become a profit center at some banks. Far from trying to lend out money to creditworthy borrowers, banks are beginning to make money by gaming inconsistent repo rules. No good can come of this.
And in times of crisis, a reliance on repo markets makes all banks incredibly fragile, and vastly increases the risk to taxpayers should a bank fail. Once upon a time, banks had equity, they had debt, and then they had deposits. If a bank failed, the bank’s equity would be wiped out first, and then its debt. The depositors were senior, which meant there was relatively little chance that the FDIC would have to bail them out.
Now, however, bank debts are shrinking, replaced with repo operations. As a result, when a bank fails, the equity gets wiped out first — and then there’s no cushion any more before the depositors start losing money and need to be bailed out. The rest of the finance world is senior to depositors: they have repo collateral, which makes them secured creditors, and secured creditors are senior to unsecured creditors, even when the unsecured creditors are just mom-and-pop depositors.
The more that the world of finance relies upon repo, the less it relies upon relationships and trust and underwriting and all the other ties which bind. The financial sector can’t afford those ties to be severed: the cost of breaking them, in terms of foregone growth and profit, is far too great. But we seem to be doing exactly that.
Nick Rowe: Why does repo exist?
This is exactly wrong. Repos are a form of informationally-insensitive asset: they epitomize the paradoxical and ultimately destructive desire on the part of people with money to lend out money but to take no credit risk while doing so. Informationally-insensitive assets are a bad idea in general, for reasons which are probably familiar at this point to most readers of this blog: they breed complacency, tail risk, and deluded, magical thinking. But repos are a particularly bad species of the genus, because they are a direct replacement for old-fashioned unsecured credit.
Lending money in return for interest on that money is a form of investing: one entity, with money to spare, invests that money in a venture which can put it to good use and profit from it. If all goes according to plan, both win. The borrower might be poor but has ideas, and the ability to make money in the future; the investor makes such profits possible.
When you move from a credit-based system to a repo-based system, however, all that changes. At that point, future profitability isn’t enough to get you cash: instead, you need to be rich already, and you need to be able to hypothecate your existing assets to some lender. If we’re talking about the banking system, here, we’re talking about a world in which banks simply cease to trust each other at all, and the answer to all interbank credit questions is “no”. The only way for banks to lend to each other is to either go through some central counterparty, hub-and-spoke style, or else to retreat to the world of repo, where banking prowess counts for nothing and all that matters is collateral quality.
The implications of such a world are already being seen: Tett says that “collateral arbitrage” has now become a profit center at some banks. Far from trying to lend out money to creditworthy borrowers, banks are beginning to make money by gaming inconsistent repo rules. No good can come of this.
And in times of crisis, a reliance on repo markets makes all banks incredibly fragile, and vastly increases the risk to taxpayers should a bank fail. Once upon a time, banks had equity, they had debt, and then they had deposits. If a bank failed, the bank’s equity would be wiped out first, and then its debt. The depositors were senior, which meant there was relatively little chance that the FDIC would have to bail them out.
Now, however, bank debts are shrinking, replaced with repo operations. As a result, when a bank fails, the equity gets wiped out first — and then there’s no cushion any more before the depositors start losing money and need to be bailed out. The rest of the finance world is senior to depositors: they have repo collateral, which makes them secured creditors, and secured creditors are senior to unsecured creditors, even when the unsecured creditors are just mom-and-pop depositors.
The more that the world of finance relies upon repo, the less it relies upon relationships and trust and underwriting and all the other ties which bind. The financial sector can’t afford those ties to be severed: the cost of breaking them, in terms of foregone growth and profit, is far too great. But we seem to be doing exactly that.
Nick Rowe: Why does repo exist?
jueves, 19 de julio de 2012
miércoles, 18 de julio de 2012
The terminal disease affecting banking
Es que se estan acabando, dice el FT
There’s no doubt, for example, that banks have held the top spot in credit creation for decades, if not centuries. Yet, there’s equally little doubt that banks have spent most of the last quarter of a century branching out into ever more exotic services and roles.
So why has that been?
In order to answer that it’s first important to understand what traditionally drives bank profitability.
As Steve Randy Waldman at Interfluidity points out it’s not, contrary to popular belief, their ability to create credit. Indeed, as we have also argued, any reputable institution or individual has the ability to do that. No, in Waldman’s opinion the power of banks actually lies in their more unique ability “to issue liabilities that are widely accepted as near-perfect substitutes for whatever trades as money despite being highly levered.”
So it’s really all about guarantees, and more specifically faith in those guarantees. You give money to a bank on deposit because you trust that it will remain a money-like instrument even though it’s earning you some interest.
Indeed, you get a return without having to compromise the liquidity profile of your holding. You get something seemingly out of nothing.
The rise of shadow banking is thus closely connected to investors becoming ever more satisfied that non-banks can perform a similar role. That, combined with the fact that these shadow banks can also guarantee liquidity without sacrificing basic returns, of course suddenly makes them competitors with banks.
There’s no doubt, for example, that banks have held the top spot in credit creation for decades, if not centuries. Yet, there’s equally little doubt that banks have spent most of the last quarter of a century branching out into ever more exotic services and roles.
So why has that been?
In order to answer that it’s first important to understand what traditionally drives bank profitability.
As Steve Randy Waldman at Interfluidity points out it’s not, contrary to popular belief, their ability to create credit. Indeed, as we have also argued, any reputable institution or individual has the ability to do that. No, in Waldman’s opinion the power of banks actually lies in their more unique ability “to issue liabilities that are widely accepted as near-perfect substitutes for whatever trades as money despite being highly levered.”
So it’s really all about guarantees, and more specifically faith in those guarantees. You give money to a bank on deposit because you trust that it will remain a money-like instrument even though it’s earning you some interest.
Indeed, you get a return without having to compromise the liquidity profile of your holding. You get something seemingly out of nothing.
The rise of shadow banking is thus closely connected to investors becoming ever more satisfied that non-banks can perform a similar role. That, combined with the fact that these shadow banks can also guarantee liquidity without sacrificing basic returns, of course suddenly makes them competitors with banks.
miércoles, 2 de mayo de 2012
Regulatory reform since the financial crisis
Discurso de Dan Tarullo
Though motivated in part by regulatory arbitrage, these developments were driven by more than regulatory evasion: Such factors as the growth and deepening of capital markets and the rise of institutional investors as guardians of household savings accelerated the fracturing of the system established in 1933. Whatever the relative importance of these causal factors, however, one thing is clear: Neither the statutory framework for, nor supervisory oversight of, the financial system adapted to take account of the new risks posed by the broader trend. On the contrary, regulatory change for the 30 years preceding the crisis was largely a deregulatory program, designed at least in part to address the erosion of banks’ franchise value caused by the rapid growth of credit intermediation through capital markets."
"The New Deal reforms, engrafted onto preexisting restrictions in the National Bank Act and state banking laws, largely confined commercial banks to traditional lending activities within a circumscribed geographic area, while protecting them from runs and panics through the provision of federal deposit insurance and Federal Reserve discount window access. At the same time, investment banks and broker-dealers were essentially prohibited from affiliation with traditional banks. This approach fostered a system that was, for the better part of 40 years, very stable and reasonably profitable, though not particularly innovative in meeting the needs of savers, on the one hand, and of households and businesses wishing to borrow funds, on the other.
Beginning in the 1970s, the separation of traditional lending and capital markets activities began to break down under the weight of macroeconomic turbulence, technological and business innovation, and competition. The dominant trend of the next 30 years was the progressive integration of these activities, fueling the expansion of what has become known as the shadow banking system, including the explosive growth of securitization and derivative instruments in the first decade of this century.
This trend entailed two major, and related, changes. First, it diminished the importance of deposits as a source of funding for credit intermediation in favor of capital market instruments sold to institutional investors. Over time, these markets began to serve some of the same maturity transformation functions as the traditional banking systems, which in turn led to both an expansion and alteration of traditional money markets. Ultimately, there was a vast increase in the creation of so-called cash equivalent instruments, which were supposedly safe, short-term, and liquid. Second, this trend altered the structure of the industry, both transforming the activities of broker-dealers and fostering the emergence of large financial conglomerates.
lunes, 9 de abril de 2012
jueves, 15 de marzo de 2012
miércoles, 14 de marzo de 2012
martes, 28 de febrero de 2012
miércoles, 1 de febrero de 2012
lunes, 30 de enero de 2012
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