Whichever candidate wins the forthcoming US election, America’s big banks expect continuing concessions in the two key areas of monetary policy and bank regulation. Monetary policy looks unlikely to change much, with the Federal Reserve (Fed) under Jerome Powell committed to keeping interest rates lower for longer, trying to create some price inflation and growth. In terms of regulation, banks expect to be allowed to increase the sizes of their balance sheets. With little investor appetite for fresh equity, this implies a relaxation of the rules restricting leverage. Do banks prefer one candidate over the other?
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While Europe’s GDP declines (12.1% in the Eurozone and 11.9% in the EU) and the debate on the EU next 7-year budget becomes heated, the relations between specific countries and the EU went largely unnoticed. The fact in point is that on July 10, the ECB welcomed Bulgaria and Croatia to the ERM2, aka as “the Euro’s Waiting room”.
Google, Apple, Amazon, Facebook, Uber, Airbnb: these are only few of the numerous companies which have fundamentally changed our lives with new technologies in recent years. While their business models differ, none of the stars come from Europe. Apart from the serial entrepreneurs at Rocket Internet in Berlin, SAP is the only big digital corporation in Germany. Is there a role to play for the EU in the attempts to change this? Yes, there is. However, not by means of new subsidies and detailed regulation, but by keeping markets open.
Edward Altman is professor emeritus at NYU’s Stern School of Business and director of credit and debt market research at the NYU Salomon Center. He is also the creator of the Z-score: a heuristic index to assess the credit worthiness (and likeliness to default) of companies. The Z-score is built as a weighted sum of commonly available corporate indexes of liquidity, reinvested resources, profitability, and market capitalisation vs liabilities (here the formula). As a scoring system, it does not originate from a precise theory. Rather, it is rooted in common sense, and parameters are calibrated until they generate some useful statistical regularity. For example, for public manufacturing companies, if Z scores higher than 2.99 then the company is not likely to default; if Z scores lower than 1.81 then the risk of default is considerable.
Last month, after a long exhausting discussion, the European countries reached an agreement on the European Union’s budget, and especially on the Recovery Fund. This latter includes around €312 billion of grants for Member States and €360 billion of loans.
After many days of fierce bargaining, the EU political leaders have eventually achieved an agreement about the magnitude of the stimulus package deemed necessary to restore sound conditions for the European economy. The deal was expected. A fiasco would have badly shaken financial markets (with consequences) and raised further doubts about the ability of the current political establishment to steer the ship through stormy seas. The € 750 billion recovery package to soften the Covid-19 crisis will be particularly welcome by the Eastern and Southern European countries, as emphasized by the European Commission in its Staff Working Document, Identifying Europe’s recovery needs . Besides, it has also been agreed to widen the 2021-2027 EU budget, up to € 1,074 billion. In other words, the EU’s next seven year budget and the Next Generation EU programme (the so-called recovery plan) will provide a total package of € 1,824 billion.
Coronavirus has spread quickly across the globe. As a result, healthcare systems in several industrialised countries have been pushed to and beyond the verge of collapse. The virus has now also reached poorer countries in Africa. Although it spreads rather slowly there and hits a younger population, it is feared that people in poorer countries will be hit particularly hard considering the relatively ill-equipped healthcare systems. In these countries, healthcare does not meet Western standards. Yet, in recent years reveals significant improvements have taken place, and today most poor countries are better prepared for health challenges than they were 20 years ago. This also regards pandemics like the current one.
Central banks are exploring new monetary policies. Unconventional ones, of course. The Bank of England (BoE) has recently announced one of such attempts. Although the main concern remains how to manage a negative-interest-rates environment, BoE Chief Economist A. Haldane most interestingly mentions the expansion of the scope of the bank’s asset-purchase plan to include risky securities.
The usual reaction to major accounting-based corporate collapses is that they are ‘one-offs’. When the truth comes out, it is relatively easy to understand the methods and motives of the bad guys, and yet it always seems surprising that auditors and regulatory watchdogs did not spot the malpractice and stop it earlier. Let us take a brief look back at the major accounting shocks of the past 20 years, the measures taken to prevent these scandals recurring, and then assess the effectiveness of these measures in the light of what we know about Wirecard.
There are situations in which people are all but obliged to act differently from what they preach. The latest example was provided the president of the European Central Bank (ECB) Christine Lagarde. In mid-March, she declared that the European Central Bank «is not here to close spreads». By saying so, she wanted to emphasise that helping a member State to sell its bonds on the market is not the ECB’s job, and that no exceptions are admitted.