September 20, 2020

DealBook: Singapore Censures 20 Banks Over Rates

LONDON – Twenty of the world’s largest banks were censured by Singapore authorities on Friday over the attempted manipulation of local benchmark interest rates that is part of a larger rate-rigging scandal being investigated by global regulators.

The financial institutions, including Bank of America and JPMorgan Chase, were found to have insufficient risk management and internal controls, which allowed some of their traders to try to alter rates including the Singapore interbank offered rate, or Sibor.

The latest revelations follow a series of multimillion-dollar fines against UBS, Barclays and the Royal Bank of Scotland for the manipulation of the London interbank offered rate, or Libor, which underpins trillions of dollars of mortgages, business loans and other global financial products.

As part of its investigation, the Monetary Authority of Singapore said 133 traders at firms like Credit Suisse, Citigroup and ING tried to influence the local benchmark rate for their own financial gain over a five-year period starting in 2007.

Around three-quarters of the implicated traders have left the banks involved, while the other bankers face internal disciplinary procedures, according to a statement from the Singaporean financial regulator.

None of the 20 global banks were fined, but the financial institutions must hold a combined $9.7 billion in extra reserves with Monetary Authority of Singapore at zero percent interest for one year while they carry out internal changes.

Barclays, ING and R.B.S. must each hold up to an additional $960 million with local authorities, while Bank of America will be forced to keep an extra $640 million with the regulator in Singapore. The amount of capital was dependent on the severity of the attempted manipulation.

Like other global regulators, the Singapore authorities also said they planned to make it a criminal offense to manipulate benchmark rates. Under current local legislation, the attempted manipulation does not constitute a criminal offense.

As the rate-rigging investigations enter their fifth year, regulators continue to look into allegations that traders at some of the world’s largest banks altered benchmark rates for financial gain.

While the Libor inquiries have centered initially on European banks, a number of American financial institutions also remain in the sights of regulators at the United States Commodity Futures Trading Commission and at the Financial Conduct Authority of Britain.

Article source:

Indian Central Bank Cuts Rates

MUMBAI — The Indian central bank lowered its benchmark policy rates by 0.25 percentage point Tuesday for the second time this year in an effort to help revive economic growth.

The rate cut was overshadowed by a political crisis when a major ally in the governing coalition quit, raising fresh doubts about Prime Minister Manmohan Singh’s ability to push through changes and regain investors’ confidence.

In its midquarter policy review, the Reserve Bank of India lowered its benchmark rate to 7.5 percent, as expected, and reduced another important number, the reverse repo rate — the rate at which it borrows from banks — to 6.5 percent.

It also left the cash reserve ratio for banks unchanged at 4 percent, in line with expectations.

The Indian economy is on track to grow at its slowest pace in a decade, about 5 percent in the fiscal year ending this month, and had been expected to experience modest improvement in the coming year. A recent uptick in wholesale inflation, rising consumer inflation driven by food prices and a record current account deficit limit the central bank’s ability to stimulate the economy, despite pressure from a government that is facing elections in 2014.

“Even as the policy stance emphasizes addressing the growth risks, the headroom for further monetary easing remains quite limited,” the bank said in its statement.

That caution reinforced market expectations that the Reserve Bank of India, which left rates on hold for nine months before cutting them in January, will only lower them a further 0.25 or 0.5 percentage point in the fiscal year that begins in April.

After an initially muted reaction to the widely expected rate cut, Indian stocks and the rupee fell on news that a political party leader, Dravida Munnetra Kazhagam, would leave the governing coalition because of differences over the government’s stand on war crimes accusations in Sri Lanka. Bond yields rose slightly.

The withdrawal leaves Mr. Singh’s coalition at the mercy of smaller parties that are skeptical of changes like land-acquisition legislation aimed at increasing investment in infrastructure.

“As the coalition becomes more fractured and depends on outside support from parties that have a narrow agenda, the very act of policy making gets diluted,” said Abheek Barua, chief economist at HDFC Bank.

The current account deficit reached a record 5.4 percent in the quarter that ended in September and is expected to end the 2012-13 fiscal year at its highest level ever.

“Although capital inflows, mainly in the form of portfolio investment and debt flows provided adequate financing, the growing vulnerability of the external sector to abrupt shifts in sentiment remains a key concern,” the central bank said.

In the government’s budget announced at the end of February, Finance Minister P. Chidambaram said the fiscal deficit would fall to 5.2 percent of gross domestic product in the current fiscal year and 4.8 percent in the next year, targets intended to help stave off a sovereign credit rating downgrade to “junk” status.

Article source:

Japanese Central Bank Defends Yen Policies

TOKYO — The recent monetary push by Japan does not amount to currency manipulation and is a legitimate and much-needed bid to lift its economy out of deflation, the country’s central banker said Thursday after new figures showed an unexpected economic contraction in the fourth quarter.

“Monetary policy seeks only to stabilize the economy,” Masaaki Shirakawa, the Bank of Japan governor, told reporters in Tokyo after the central bank decided to stand pat on policy moves for now, maintaining its benchmark rate target at a range of zero to 0.1 percent and holding off on expansion of an asset-buying program. “It does not seek to influence currencies.”

Earlier Thursday, gross domestic product numbers from the government showed the Japanese economy remained fragile, shrinking at an annualized rate of 0.4 percent in the October to December quarter, the third consecutive quarter of contraction.

Still, economists expect a Japanese economic recovery to gain steam later this year, as Prime Minister Shinzo Abe of Japan pursues fresh fiscal stimulus programs while keeping up pressure on the central bank to stick to near-zero interest rates and continue to flood the economy with money.

Markets have jumped since Mr. Abe began pushing his agenda in mid-November as part of a successful campaign that put his Liberal Democratic Party back in power for the first time since 2009. During the past three months, the Nikkei 225-share index has risen 30 percent, while the yen has weakened by 15 percent against the dollar.

Last month, the government and central bank promised to work together on monetary policies until Japan achieved 2 percent inflation, a lofty goal for Japan, which has been mired for more than a decade in deflation, a damaging decline in prices.

Mr. Shirakawa is due to end his five-year term next month, and Mr. Abe has signaled that he will appoint a successor who will be more aggressive in fighting deflation.

But increasing the Japanese monetary supply to end deflation would also cause the yen to weaken, which Japanese policy makers have openly welcomed as a boon to the country’s exporters. That has led to grumbling from officials in the European Union and elsewhere that Japan was manipulating its currency to give its exports an unfair edge.

On Tuesday, the Group of 7 advanced economies, which includes Japan, pledged to let markets determine the value of their currencies — a statement that brought relief in Japan because it was not singled out for criticism but that also signaled that the prospect of competitive currency devaluations would be up for debate at the meeting this week in Moscow of finance officials from the Group of 20 leading economies.

Finance Minister Taro Aso of Japan vowed to defend Japan against those claims at the Group of 20, saying Thursday on his Web site that “the world had been awed” by Japan’s recent economic policy moves, which were “the subject of global attention.”

“Other countries want to know how we have done this. It is absolutely not a result of us intervening in foreign exchange markets,” Mr. Aso said.

Article source:

Bank of Japan Moves to Fight Deflation

TOKYO — The Bank of Japan set an ambitious 2 percent inflation target and pledged to ease monetary policy “decisively” by introducing open-ended asset purchases, following intense pressure from the country’s audacious new prime minister, Shinzo Abe, who has made beating deflation a national priority.

In a joint statement with the government, the central bank said it was doubling its inflation target to 2 percent and said it would “pursue monetary easing and aim to achieve this target at the earliest possible time.”

The Bank of Japan also said that it intended to purchase assets indefinitely, promising to stick to a program that has allowed the bank to pump funds into the Japanese economy, even with interest rates at virtually zero. The bank’s board voted to keep its benchmark rate at a range of zero to 0.1 percent.

Since last year, when Mr. Abe was still opposition leader, he has urged the central bank to do more to end deflation, the all-around fall in prices, profit and incomes that has plagued Japan’s economy since the late 1990s. He has stepped up the pressure on the bank after a landslide victory by his Liberal Democratic Party in parliamentary elections in December, which catapulted him to office for the second time since a short-lived stint in 2006-07.

Mr. Abe’s push to increase the monetary supply, among other things, has weakened the yen, a boon to the competitiveness of exporters, which make up much of Japan’s growth. Earlier this month, Mr. Abe also announced a 12 trillion yen emergency stimulus, providing even more tailwind for the Japanese economy. That bright outlook has pushed the Nikkei stock index 20 percent higher since mid-November, when Mr. Abe first campaigned on his expansionary platform.

Mr. Abe’s critics, however, warn that the central bank, which will buy up more government bonds as part of its asset purchase program, will become a printing press for profligate government spending — spending that carries great risks for a country whose public debt is already twice the size of its economy. Critics also say that before flooding a broken system with money, Japan must first tackle structural problems that hurt economic efficiency.

Mr. Abe maintains that deflation will undermine any efforts to grow, and that the government and central bank must act together to get prices rising again. But in a nod to critics, the joint statement said the government would also promote “all possible decisive policy actions for reforming the economic structure” and establish “a sustainable fiscal structure.”

Article source:

DealBook: European Regulators Propose Overhaul of Benchmark Interest Rate

Related Links

LONDON — European regulators called for a major overhaul of a benchmark interest rate on Friday, but stopped short of demanding direct regulatory oversight after a rate-rigging scandal.

The recommended changes to the euro interbank offered rate, or Euribor, come after a $1.5 billion settlement by the Swiss bank UBS, where some traders were found to have altered that rate as well as the London interbank offered rate, or Libor, for financial gain.

The European Banking Authority and European Securities and Markets Authority are pushing to improve the accuracy of the benchmark rate and increase oversight of how banks submit rates to Euribor, which underpins trillions of dollars of global financial products.

European authorities said the system did not require participating banks to have internal governance structures to manage potential conflicts of interest when submitting rates to Euribor. Also, the rate-setting process is not sufficiently assessed against real banking transactions, according to the report.

The recommendations include cutting in half the number of maturities included in the Euribor process, to seven rates. That would leave the focus only on benchmark rates that are supported by a large number of financial transactions.

The change is in response to a drastic reduction of lending among global financial institutions during the financial crisis that reduced the accuracy of firms’ rate submissions. The fall in actual transactions also led a number of traders and senior managers at global banks to manipulate the rate, according to regulatory filings.

On Friday, European authorities did not demand direct regulatory control over Euribor, which continues to be overseen by the European Banking Federation, a trade body. A recent review of Libor by British authorities recommended regulatory oversight of that rate, as well as criminal charges against individuals trying to alter the rate for financial gain.

Despite widespread calls for authorities to take control over global benchmark rates, the European regulatory bodies do not have the legal responsibility to recommend those changes, according to a European Securities and Markets Authority spokesman.

The European Commission is considering changes to how global benchmark rates are set, and is expected to propose legislation later this year.

Other recommendations outlined by European authorities on Friday included regular audits of the rate-setting process by the European Banking Federation, as well as increasing the independence of the board that oversees Euribor. The trade body said it welcomed many of the changes outlined by the European banking and financial market regulators, adding that it was open to regulators participating in the supervision of Euribor.

Greater scrutiny of the benchmark rate is already having an effect.

As more banks continue to be embroiled in the rate-rigging scandal, a number of financial institutions, including Rabobank Groep of the Netherlands and Raiffeisen Bank International of Austria, have left the panel that sets Euribor. Euribor-EBF, the group that oversees the rate, has said other banks could also pull out of the rate-setting process.

Article source:

European Economy Remains Fragile, Data Shows

In its monthly report on lending, the central bank said Thursday that loans to companies, not including banks, in the 17-nation currency zone fell at an annual rate of 1.8 percent in November, the same rate of decline as in October.

That is a sign that measures by the bank have not yet succeeded in restoring the flow of credit to troubled countries like Spain. Credit is a prerequisite for economic growth, and the central bank closely watches data on lending in deciding the level of the official interest rate.

During the last year the central bank has gone to ever greater lengths to encourage lending. It has cut the benchmark interest rate to a record low of 0.75 percent and allowed banks effectively to borrow as much money as they want at that rate.

The central bank has also promised to buy the bonds of countries like Spain to hold down their borrowing costs, a policy intended to help businesses and consumers in the countries hardest hit by recession.

The interest rate that a government pays often acts as a floor on the market rates paid by the country’s companies and consumers.

But the central bank’s efforts have been thwarted by continued reluctance by banks, many of which are already burdened by bad loans and are trying to reduce risk. In some countries there may also be a lack of demand for loans, because corporate managers are not confident enough to resume investing in their businesses.

“Today’s euro zone bank lending figures are a timely reminder that the economic situation in the 17-country region remains very fragile,” Martin van Vliet, an analyst at ING Bank, wrote in a note to clients on Thursday.

Lending to euro zone households continued to register only weak growth, rising at an annual rate of 0.4 percent in November, the same rate as in October, the central bank said.

The latest data could reinforce expectations that the bank will cut the benchmark rate early this year, perhaps as soon as the monthly monetary policy meeting next Thursday.

But a rate cut would most likely face opposition from some members of the central bank’s governing council, including Jens Weidmann, president of the Bundesbank, the German central bank.

Mr. Weidmann and others might argue that lower rates would increase the risk of inflation, without doing much to encourage lending in the countries that need it most.

In interviews and other public statements, Mr. Weidmann has continued to warn about inflation even though most economists see little risk.

Inflation in the euro area fell to an annual rate of 2.2 percent in November from 2.5 percent in October, according to the most recent official figures. The central bank aims to keep inflation at about 2 percent.

The report on monetary conditions did contain some good news. Mr. van Vliet pointed out that bank deposits in Spain and Greece rose in November, a sign that people were no longer withdrawing money from those two countries.

“This confirms that fears of a (partial) euro zone breakup are gradually receding,” Mr. van Vliet wrote.

And while the German economy has slowed in recent months, unemployment numbers released Thursday suggested that it remained resilient. The unemployment rate rose to 6.7 percent from 6.5 percent, the German Federal Employment Agency said. Adjusting for seasonal fluctuations, however, the unemployment rate was unchanged at 6.9 percent. About 2.9 million people in Germany are jobless.

The stable German labor market, despite poor weather that would normally suppress hiring, is a sign that “most firms do not expect the currently weak economic environment to persist for much longer,” Thomas Harjes, an analyst at Barclays, wrote in a note.

According to the methodology used by the International Labor Organization, which uses a narrower definition of joblessness, Germany’s unemployment rate was only 5.3 percent.

A report by the Bank of England Thursday indicated that the British central bank is having better luck restoring credit to the economy than the European Central Bank. Lending to both businesses and consumers rose significantly, the Bank of England said in its quarterly credit conditions survey.

Britain is not a member of the euro zone, and the Bank of England undoubtedly faces a less complex task than the European Central Bank, which must try to fashion a monetary policy for 17 countries.

The Bank of England attributed the improvement to its Funding for Lending Scheme, which rewards banks that increase the amount of credit they provide. Banks that lend more can borrow more from the central bank at lower rates than banks that decrease lending.

“The Funding for Lending Scheme was widely cited as contributing towards the increase in secured and corporate credit availability,” the Bank of England said in a statement.

Article source:

Bank Lending in Euro Zone Slumped in November, Data Show

In its monthly report on lending, the E.C.B. said Thursday that loans to companies, not including banks, in the 17-nation currency zone fell at an annual rate of 1.8 percent in November, the same rate of decline as in October.

That is a sign that E.C.B. measures have not yet succeeded in restoring the flow of credit to troubled countries like Spain. Credit is a prerequisite for economic growth, and the E.C.B. closely watches data on lending in deciding the level of the official interest rate.

The latest data could encourage expectations that the E.C.B. will soon cut the benchmark rate from 0.75 percent, already a record low, as soon as its monthly monetary policy meeting on Jan. 10.

“Today’s euro zone bank lending figures are a timely reminder that the economic situation in the 17-country region remains very fragile,” Martin van Vliet, an analyst at ING Bank, wrote in a note to clients Thursday.

The E.C.B. report on monetary conditions did contain some good news, however. Mr. van Vliet pointed out that bank deposits in Spain and Greece rose in November, a sign that people are no longer pulling money out of those two countries.

“This confirms that fears of a (partial) euro zone breakup are gradually receding,” Mr. van Vliet wrote.

In addition, according to a separate report, unemployment figures from Germany showed that the labor market is holding up well despite slower economic growth.

The unemployment rate rose to 6.7 percent from 6.5 percent, the German Federal Employment Agency said. Adjusting for seasonal fluctuations, however, the number of unemployed people was unchanged at 6.9 percent. About 2.9 million people in Germany are jobless.

The stable German labor market, despite poor weather that would normally suppress hiring, is a sign that “most firms do not expect the currently weak economic environment to persist for much longer,” Thomas Harjes, an analyst at Barclays, wrote in a note.

According to the methodology used by the International Labor Organization, which uses a narrower definition of joblessness, Germany’s unemployment rate was only 5.3 percent.

Article source:

European Central Bank, Under New Chief, Cuts Key Rate

Two days after assuming office in one of the most turbulent phases in the history of the euro zone, Mr. Draghi signaled that he might be more willing than his predecessor, Jean-Claude Trichet, to tolerate inflation in the name of economic growth. The bank cut the benchmark rate to 1.25 percent from 1.5 percent, a move aimed at putting more money into the European economy by making borrowing easier.

Investors cheered the decision by pushing stocks higher in Europe and the United States.

The cut, which surprised some analysts, may signal a shift in strategy — or at least in tone — at the bank, which oversees monetary policy for the 17 European Union nations that share the euro. Known for his caution, Mr. Draghi, formerly the governor of the Bank of Italy, was not expected to make bold moves so soon.

But speaking to reporters after he presided as chairman of the bank’s governing council for the first time, Mr. Draghi indicated that he felt he had little choice but to reduce interest rates. He warned that economic growth was likely to be significantly worse than the bank expected. That assessment came a day after the Federal Reserve also reduced its growth forecasts through 2013.

While campaigning this year to succeed Mr. Trichet, Mr. Draghi emphasized his credentials as an inflation fighter and as a voice of fiscal prudence in his native Italy. But on Thursday, he played down the risks posed by inflation, which at a current annual rate of 3 percent is above the bank’s target of about 2 percent. Slower growth, he indicated, would act as its own curb on inflation.

“In such an environment, price, cost and wage pressures in the euro area should also be moderate,” he said. “Today’s decision takes this into account.”

At the same time, though, Mr. Draghi disappointed those who want the bank to help calm skittish global investors by aggressively buying European government bonds, using its ability to print money to reduce the risk that the Greek crisis might create a contagion infecting Italy, Spain and others. He stuck to the position that the bond purchases the bank has been making since the spring of 2010 were temporary and limited, and justified solely as a way for the bank to maintain its control over interest rates.

Rather, Mr. Draghi said, it was up to national leaders to regain investor confidence by reining in spending and removing excessive regulations and other obstacles to growth. “The first and foremost responsibility for maintaining financial stability lies with national economic policies,” he said.

Mr. Draghi’s statements on bond market intervention led some analysts to conclude that, despite the rate cut, he would not veer significantly from the path set by Mr. Trichet. Mr. Draghi described his predecessor on Thursday as a “role model.”

The bank has spent 173.5 billion euros, or $240 billion, intervening in bond markets since May 2010, a modest sum compared with the securities purchases made by the Fed or the Bank of England to help prop up their own financial markets and stimulate their economies.

“The E.C.B. seems to be continuing to play its dangerous game of doing the minimum amount possible, counting on the European politicians to extinguish the fire,” Jens Sondergaard, an analyst at Nomura, wrote Thursday in a note to clients.

Still, some analysts said that Mr. Draghi’s statements on bond buying should not be taken at face value and that the bank would intervene if necessary to save the euro.

“If worse came to worst, the E.C.B. would buy government bonds on a massive scale,” Jörg Krämer, chief economist at Commerzbank in Frankfurt, wrote in a note.

But Mr. Draghi cannot say that out loud, the thinking goes, for fear that leaders like Prime Minister Silvio Berlusconi of Italy would renege on promises to remove barriers to competition and improve economic performance.

“It is understandable that they don’t want to give governments a free lunch,” said Marie Diron, a former European Central Bank economist who advises the consulting firm Ernst Young.

Article source:

European Central Bank Holds Rate Steady but Hints at a July Increase

The euro fell against the dollar, however, after Jean-Claude Trichet, the central bank president, continued a disagreement with the German government by rejecting any suggestion that creditors of Greece should be required to share the burden of a rescue plan.

“We are not in favor of restructuring, haircuts and so forth,” Mr. Trichet said at a news conference after the bank’s governing council met about monetary policy.

His statements were an implicit rebuke to Wolfgang Schäuble, the German finance minister, who said on Wednesday that holders of Greek bonds should swap them for debt that the country would have longer to repay.

The Bank of England, meanwhile, kept its main interest rate at a record low amid concerns that the country’s economy was still too weak to cope with higher borrowing costs.

In the 17-nation euro zone, which does not include Britain, the European Central Bank has been more focused on inflation, which has been pushed up by rising food and energy prices.

“Strong vigilance is warranted,” Mr. Trichet said. That language seemed to indicate that a rate increase in July is probable, though the bank always leaves its options open.

Central bank economists slightly lowered their forecast for inflation next year, suggesting that the bank might feel less pressure to raise rates quickly.

On Thursday, the European Central Bank left its benchmark rate at 1.25 percent, after raising it in April from 1 percent, the first increase in two years. Inflation in the euro area was 2.7 percent in May.

“When I compare inflation today to interest rates, I see a negative number,” Mr. Trichet said.

The benchmark rate in Britain was left at 0.5 percent, and Britain’s bank also kept the size of its asset purchase plan unchanged at £200 billion, or about $327 billion.

The European Central Bank said it would continue its emergency support of euro zone banks by granting them unlimited low-interest loans at least through September.

With Germany, Europe’s largest economy, growing so quickly that some economists fear overheating, the central bank has been trying to nudge interest rates back to levels that would be normal in an upturn.

But the Greek debt crisis still threatens growth in the euro zone as a whole.

Economies in Spain, Ireland and other so-called peripheral countries remain sluggish. Higher rates could make it harder for those countries to recover.

Mr. Trichet argued that the best way to help the European economy was to make sure that prices were contained.

“It is good for all countries,” he said.

Questions about Greece dominated the news conference, and Mr. Trichet showed no sign of being willing to consider a Greek restructuring unless it was done voluntarily by creditors — an outcome that is difficult to imagine.

He implied that any restructuring of Greek debt might prompt the bank to stop accepting the country’s bonds as collateral.

A move like that could be fatal for some Greek banks that depend on low-cost loans from the central bank.

“It is difficult to see how this debate will be resolved,” said Marie Diron, senior economic advisor at Ernst Young, the consulting firm.

“Someone, either the E.C.B. or the German government, needs to make some concessions to reach a compromise,” she wrote in a note.

“And this needs to happen soon as time is running out for Greece to refinance its debt.”

Greece reported that its economy shrank far more than expected at the start of 2011.

That could signal that a second wave of austerity measures demanded by the European Union and the International Monetary Fund would impose even more pain on a fractious society.

Gross domestic product fell at an annual rate of 5.5 percent in the first three months of this year, the official numbers showed, far more than an earlier estimate of 4.8 percent.

Though it does not belong to the euro zone, Britain also remains fragile economically.

Consumer confidence worsened in April as more people claimed unemployment benefits and as wage increases lagged behind inflation.

Spending cuts and tax increases that are part of the government’s austerity program made households even more reluctant to spend.

The British economy stagnated in the six months through the end of March. The Bank of England governor, Mervyn A. King, has warned that inflation could accelerate to about 5 percent in the short term before cooling off again.

Higher consumer prices, partly a result of higher commodity prices, have also contributed to slowing household spending.

“The story of weak growth is still going to continue for a while,” said James Knightley, a senior economist in London for ING Financial Markets.

Some economists had predicted that British rates would rise in May this year, but as the economic outlook deteriorated they have pushed that back. Mr. Knightley said he expects an increase as early as this November.

The Bank of England did not issue a statement Thursday. But Paul Fisher, an official at the bank, argued last week that raising interest rates should be delayed until the economy was stronger.

The International Monetary Fund on Monday backed Prime Minister David Cameron’s plan to cut Britain’s budget deficit, which had been criticized by the opposition Labour Party as too strict and harming the economic recovery.

Though it was a formality, the central bank officially endorsed Mario Draghi, governor of the Bank of Italy, as successor to Mr. Trichet, whose eight-year term expires at the end of October.

European leaders are expected to officially nominate Mr. Draghi this month. In a statement, the central bank called Mr. Draghi, “a person of recognized standing and professional experience in monetary or banking matters.”

Jack Ewing reported from Frankfurt and Julia Werdigier from London.

Article source: