Camillo Venesio* Italian Banking Association (ABI) President’s Committee, CEO and General Manager of Banca del Piemonte
Among the plentiful analyses carried out on the causes that led to the financial crises that threatened to devastate the world’s major economies from 2007 to 2017, a statement by Nobel Prize Paul Samuelson brilliantly summarizes the situation. A month after the bankruptcy of Lehman Brothers, the American economist stated that “at the bottom of this worst financial mess in a century is this: Milton Friedman-Friedrich Hayek libertarian laissez-faire capitalism, permitted to run wild without regulation.[…]. Both of these men are dead, but their poisoned legacies live on.”
Justifiably, the political leaders of the most important countries of the world demanded the Regulators to drastically reduce the chance to come close to such a situation again. The Regulators’ response, equally justified and strong, has led to a veritable “regulatory tsunami” over the last decade. Thousands of measures aimed at reducing risk have made granting of credit to the economy stricter and more controlled. In Europe, the main targets were the countries with the highest public debt and the banking sectors whose models were mainly based on lending to households and businesses.
Allow me to take a quick step back in time by about a century and make a thought experiment. At the end of 1918, the economist John Maynard Keynes was called to join the British delegation at the Paris Peace Conference. He became increasingly concerned about the negotiations taking place, and particularly about the extremely punitive attitude towards Germany of WWI winner countries. Keynes pointed out that it was essential to reach an equitable solution with regard to the varying debt levels of all the warring countries, both victors and losers, and to include German reparations to pay damage caused by the war within this framework.
He was ignored. In June 1919, in just a few weeks, he wrote The Economic Consequences of the Peace. Here, he stated that the French idea of imposing “Carthaginian peace” on Germany had prevailed in Paris. Keynes forecasted that such onerous-reparations would never be paid. They would make Germany unable to get back on its feet with awful political consequences. As we know, he was terribly right.
Fortunately, the victors of WWII tried not to repeat the mistakes made at the Paris Conference and introduced cooperation agreements and aid even for the countries that had lost. Italy came out of WWII devastated, and yet was able to develop into the second largest manufacturer and the second most export-oriented economy in Europe, despite lacking raw materials and capital.
Now, I have tried to apply this history lesson to the current European and Italian situations. Even if we live in a very different era and are no longer talking about wars and unspeakable suffering, I believe that we should not underestimate the signs of serious hardship being experienced by important parts of contemporary societies.
Against this backdrop, the “regulatory tsunami” is having negative impact on lending. The situation is likely to become more complicated with the new Guidelines on loan origination and monitoring. And bank lending in Italy, as well as in many other European nations including Germany, is still vitally important for millions of micro and small businesses.
The Authorities have, at times, tried to assess the effects of financial regulatory reforms on the financing of small and medium-sized enterprises. Focusing on the Basel III regulations, the Financial Stability Board recently observed in a study that, even with a negative transitional impact on the supply of loans to SMEs, the net effect over the long-term would be positive. A higher capitalized and more liquid banking sector would be an advantage both in terms of financial stability and growth, with benefits outweighing the initial costs.
This study does present some shortcomings. The results from the empirical analysis do, in fact, seem to provide substantial evidence of both transitory and persistent restrictive effects on SME lending. In some cases, the FSB’s conclusions do not seem to be supported by any analysis or data, thus sounding like dogmatic statements.
This raises the questions: could an “overly-punitive” approach to the lending activity, particularly when considering the profound cultural differences between European countries, have contributed to the increasing social malaise that has affected important sections of the population? And if this is the case, what could happen if the regulations are made even more stringent?
As an Italian and a European citizen, I can only hope that some brilliant economist will be able to distance himself from the still prevailing view of strictness at all costs, modelling the negative impact on growth, and that some courageous and clear-headed legislator will have the courage to act with determination, so as to establish a more even-handed approach, that takes into account the distinctive characteristics of each European economy. This could also allow Italy to gradually move forward towards the cultural change needed to ensure long-term sustainable growth.
Dollar advances as investors shy away from risk
By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The dollar edged higher against a basket of currencies on Monday, as a burst of volatility in stock markets around the globe sapped investors’ appetite for riskier currencies.
Concerns over the timing and size of additional U.S. fiscal stimulus sent major U.S. stock indexes briefly more than 1% lower before they recovered to trade little changed on the day.
The sharp move in stock markets soured FX traders’ appetite for risk, Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto, said.
“Your high beta currencies – currencies that are highly correlated with equity markets and global risk appetites – are tumbling in synchrony with equity indexes,” Schamotta said.
Market sentiment turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the coronavirus hurt business activity.
The U.S. Dollar Currency Index was 0.19% higher at 90.396, after rising as high as 90.523, its strongest since Jan. 20.
The euro was down around 0.28% against the dollar. German business morale slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in Europe’s largest economy, which will stagnate in the first quarter, the Ifo economic institute said on Monday.
The Australian dollar – seen as a liquid proxy for risk – was 0.16% lower against the dollar.
U.S. stocks have scaled new highs in recent sessions even as concerns about the pandemic-hit economy remain. Investors are trying to gauge whether officials in U.S. President Joe Biden’s administration could head off Republican concerns that his $1.9 trillion pandemic relief proposal was too expensive.
Despite the dollar’s recent rebound – the dollar index is up about 1.3% since early January – analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in 10 years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.
The U.S. Federal Reserve meets on Wednesday and Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.
Sterling strengthened on Monday against the weaker euro as Britain’s COVID-19 vaccine rollout over the weekend offered support to the British currency.
(Reporting by Saqib Iqbal Ahmed; Editing by Andrea Ricci and Sonya Hepinstall)
London and New York financial services treated the same, EU says
By Huw Jones
LONDON (Reuters) – An EU forum for discussing financial services with Britain will be similar to what the United States has, and it must be in place before market access will be considered, the bloc’s financial services chief said on Monday.
Britain’s Brexit trade deal with the EU from Jan. 1 does not cover financial services, leaving its City of London financial center largely cut off from the EU.
Both sides are committed to creating a forum for financial regulatory cooperation by March, but talks have not started yet, the EU financial services commissioner told the European Parliament.
“What we envisage for this framework is similar to what we have with the United States, a voluntary structure to compare regulatory initiatives, exchange views on international developments and discuss equivalence related issues,” Mairead McGuinness told the European Parliament.
U.S. and EU regulators took about four years just to agree on rules on cross-border derivatives.
Trading in euro shares has already left London, along with a chunk in swaps trading. That questions the value of any future EU access given that many banks and trading platforms from the UK have opened units in the bloc.
McGuinness said regulatory cooperation will not be about restoring market access that Britain has lost, nor will it constrain the EU’s unilateral equivalence process.
Equivalence refers to EU access when Brussels deems a non-EU country’s rules are similar enough to the bloc’s.
“Once we agree on our working arrangements, we can turn to resuming our unilateral equivalence assessments… using the same criteria as with all third countries, including anti-money laundering and taxation cooperation,” she said.
Britain plans to amend some EU rules.
“The United Kingdom intention to diverge requires a case-by-case discussion in each area. Equivalence and divergence are polar opposites,” McGuinness said.
“I am optimistic that over time, through cooperation and trust, we will build a stable and balanced relationship with our UK friends.”
(Reporting by Huw Jones; Editing by Dan Grebler)
Staying connected: keeping the numbers moving in the finance industry
By Robert Gibson-Bolton, Enterprise Manager, NetMotion
2020 will certainly be hard to forget. Amongst the many changes we have come to live with, for many of us it has been adapting to a new style of working. Whatever your take on it is, remote working, working from home or even agile working, one thing remains clear – for many of us, this could be the new-normal for the foreseeable future. The professional services sector is no different. For example, many finance practices around the world are now allowing staff to work from home part of the time. In addition, a recent KPMG report found that half of the UK’s financial services workforce want to work from home after COVID-19.
Will this therefore become the de facto working practice for the finance industry too? We can’t say for sure, but this agile approach to working has certainly caused a major rethink for many firms. And as they evolve and adapt to meet the demands of a different way of working, firms need to ensure that their workforce can seamlessly interact with each other and their clients – this is key if they want to continue to deliver exceptional client service. Whilst financial services organisations everywhere are busy adopting innovative new technologies to better reflect the ‘work from anywhere environment’, they need to ensure secure access to resources and strive towards enhancing the end user experience. Success will be replicating the office working experience at home or wherever else they may be.
It’s all well and good for a firm to boast about the ability of their staff to work successfully from home, but how do they also establish that their people are just as productive as they were before? Whilst the IT department will have to grapple with security and compliance issues that arise from agile and remote working, they must also ensure that their people can connect securely, without eschewing user experience. And it needs to be completely seamless, without compromising the service level provided to clients.
Why all the fuss?
Which brings us nicely to persistent connectivity. Persistent connectivity effectively allows you to do more. How frustrating for the user when connectivity drops, or when the device that they are working on can’t find a network to connect to (or if the device switches between different networks). When connectivity drops, and re-connection is required then there is that small period where the user is not connected at all. And the user might have to re-authenticate or log into their VPN again (most VPNs are rubbish when they lose connectivity). All of these different scenarios ultimately disrupt the user experience – persistent connectivity provides the flexibility to overcome these challenges. When you enjoy consistent connectivity, you are making sure that the technology works as it was designed to work, allowing staff to rely on optimum user experience, anytime, anywhere – in effect, supplying them with that office-like experience, wherever they are. Just think about how many hours might be spent on a train, in a hotel or even on a client site. Consistent connectivity is key here – consistent in any of these locations.
Connectivity will be a fundamental component for successful remote working as firms try to meet the demands of an increasingly mobile workforce. Ultimately, they need encrypted and reliable connections that enable them to quickly and easily reach business applications and services. Working in a disconnected environment can lead to frustrated workers, hardly fitting given all the new remote working policies in place.
Getting the user experience spot-on
When you fine-tune connection performance so that essential business applications run reliably across networks, you are essentially talking about traffic optimization. Mobile traffic optimization ensures that applications, resources and connections are tuned for weak and intermittent network coverage and can roam between wireless networks as conditions and availability change. When connections aren’t performing well, applications that are crucial for job performance can experience packet loss, jitter or latency that can make working on the hoof extremely tricky. Compared to wired networks, wireless networks operate under highly variable conditions, including such factors as terrain or congested mobile towers. When you optimise the flow of traffic, you are helping to manage packet loss. Effectively, packet losses are data loss, which happens very regularly when you’re on the move or transitioning between different networks. Applications that require a lot of data tend to become fairly unusable when you hit even minor packet loss, which can be a common occurrence for many on residential broadband or on local Wi-Fi. conversely, NetMotion can enable critical applications to work and prevent disruptions at over 50% packet loss – in this way, employees can rely on technology performing well in situations and locations where it simply could not before. That is incredibly powerful for firms.
The finance industry is facing many of the same challenges presented to other industries. It is a question of balancing the requirement for more sophisticated ways to ensure secure access to resources with the need to enhance the end user experience (key team members in particular). For finance firms everywhere, adopting the right technologies will ensure that their people can enjoy a ‘work-from-anywhere’ environment.
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