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Mark Carney: Bumpy ride ahead for global economy

OWoN: Note the highlighted points in bold font. When the Bank of England talks - listen.


Mark Carney, Governor of the Bank of England


Mark Carney: Bumpy ride ahead for global economy


Bank of England Governor warns that as central banks unwind their unconventional policies, financial market volatility could return

The Telegraph
By Peter Spence
7 November 2014

Dramatic shifts in the financial landscape mean that a return to normal market conditions “could be bumpy”, Mark Carney, the Bank of England’s Governor has said.

Speaking at the International Symposium of the Banque de France in Paris, he discussed a shift in the form of corporate financing, away from traditional bank lending and towards instruments such as corporate bonds.

The Governor said that an increased reliance on these market-based forms of financing has put a premium on increasing the resilience of markets.

The present “low volatility environment” - reflecting a lack of uncertainty in markets - will change as central banks begin to unwind unconventional policy and raise rates, the Governor suggested.

While increases in interest rates will be gradual in nature, Mr Carney stressed, a bumpy ride may be inevitable - which in turn would affect the pace of those rate hikes.

Separately, Janet Yellen, chair of the US Federal Reserve, warned that as central bank policy moves back to its pre-crisis state, this “could lead to some heightened financial volatility”.

“As employment, economic activity and inflation rates return to normal, monetary policy will eventually need to normalise too”, Ms Yellen said.

The US Federal Reserve ended its quantitative easing scheme last month, unlike the Bank of England, which maintains a £375bn asset purchase programme. Neither have hiked their interest rates since the financial crisis.

When rate rises do come, they will be a sign that the US economy is “finally emerging from the shadow of the Great Recession”, the Fed chair said.

The Bank’s Governor said that the shift from bank lending to more market-based finance had not been accidental, and was in fact a structural and “positive thing”.




As a result, the Bank has moved to work as a backstop not just for traditional banks, but also with others - broker-dealers and central counterparties - as it is "prepared to be a market maker of last resort in extremis to support smooth market functioning at all times".

“Since the crisis of 2008, virtually all credit growth has been in the capital markets … it’s a consequence of a series of regulatory reforms”, Mr Carney said, that have sought to tackle the under-capitalisation of banks, their overly complacent nature, and the very large implicit public subsidies that they have received.

“The implicit subsidies - effectively too big to fail and the likelihood of government support - trust me when things were under stress, that subsidy was massive”, the Governor said.




“It has come down, it has not been eliminated, but that is because we are still working to end too big to fail”, he added.

Mr Carney said that the introduction of Basel III had increased the effective capital requirements for the world’s largest banks by seven times. This has in turn led to a reduction in the proportion of finance coming from traditional bank lending. [emphasis added]

He suggested that a G20 Leaders Summit - to be hosted in Brisbane next week - could be a “watershed for ending too big to fail”. Representatives are preparing to agree a proposal to consult on total loss-absorbing capital (TLAC) - which banks will need to hold as buffers against future shocks. [emphasis added]


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2 comments :

  1. Good article, something to pay attention to.

    ReplyDelete
  2. A little age on this article, but useful information.

    The Rise of the New Economy Movement
    Gar Alperovitz, Alternet, Tuesday, May 22, 2012

    Activists, theorists, organizations and ordinary citizens are rebuilding the American political-economic system from the ground up.

    Just beneath the surface of traditional media attention, something vital has been gathering force and is about to explode into public consciousness.
    The “New Economy Movement” is a far-ranging coming together of organizations, projects, activists, theorists and ordinary citizens committed to rebuilding the American political-economic system from the ground up.

    The broad goal is democratized ownership of the economy for the “99 percent” in an ecologically sustainable and participatory community-building fashion. The name of the game is practical work in the here and now—and a hands-on process that is also informed by big picture theory and in-depth knowledge.

    Thousands of real world projects — from solar-powered businesses to worker-owned cooperatives and state-owned banks — are underway across the country. Many are self-consciously understood as attempts to develop working prototypes in state and local “laboratories of democracy” that may be applied at regional and national scale when the right political moment occurs.

    The movement includes young and old, “Occupy” people, student activists, and what one older participant describes as thousands of “people in their 60s from the ’60s” rolling up their sleeves to apply some of the lessons of an earlier movement.

    Read more at: http://goldenageofgaia.com/2014/11/11/gar-alperovitz-the-rise-of-the-new-economy-movement/

    ReplyDelete

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