Daily Archives: June 7, 2012 @ 5:36 pm (Thursday)

Fed Boosts Capital Rules for Banks, Hitting Stocks

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The regulators are already requiring more like 8-10% capital from most banks, so raising the legal limit to 6% from 4% is inconsequential.

Fed Boosts Capital Rules for Banks, Hitting Stocks

June 7 (CNBC) — The Federal Reserve approved new rules Thursday for U.S. banks to set aside more money to cushion against unexpected losses, a key step in preventing another financial crisis.

The new rules require the nation’s largest banks to hold at least 6 percent of their assets in capital reserves, up from a minimum of 4 percent currently, by 2019.

The 2010 Dodd-Frank financial overhaul law—as well as an international agreement last year in Basel, Switzerland—require regulators raise capital requirements for banks.

The banks had lobbied vigorously against the proposals, saying setting aside so much money in reserve could limit what they could lend.

The rules are open to comment until September. They will be finalized after that.

Though the move was expected, financial stocks— including Bank of America and Morgan Stanley— fellsharply after the Fed approval was announced.

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LOCKHART SAYS MORE EASING NOT CALLED FOR AT THE MOMENT

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I guess he’s ok with the output gap/unemployment…
And not that it matters, as they they only shoot blanks in any case.

*LOCKHART: COMMUNICATIONS, BALANCE SHEET ARE TOOLS
*LOCKHART: `WE HAVE NOT EXHAUSTED ALL OUR OPTIONS’
*LOCKHART: DEFLATION, DETERIORATING CONDITIONS COULD BE TRIGGER
*LOCKHART SAYS `STRESSED’ ECONOMY MIGHT REQUIRE EASING
*LOCKHART SAYS MORE EASING NOT CALLED FOR AT THE MOMENT

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Dudley on interest income channel

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From a friend:

At the conference on Friday, NY Fed President Dudley presented a chart that showed the long-term impact on the budget deficit of lower Fed remittances of interest income over time (his point was that it would lead to a larger deficit and the Treasury should not assume recent levels of Fed remittances).

I asked him in Q&A if he considered that in the short-term, the interest being accrued by the govt sector would typically be accrued by the non-govt sector and it could thus be viewed as a form of fiscal drag, and that maybe it should be offset by looser fiscal policy elsewhere if the economy warranted it due to a large output gap.

His response, not surprisingly, was:
‘You are factually correct, but’:

  • A lot of that interest income goes to non-u.s. investors, so its not like the U.S. economy loses all that interest income.
  • The propensity to consume of savers is lower than that of borrowers.
  • The drain on interest income is more than offset by easier financial conditions elsewhere (via equities, credit spreads, etc).

That’s just how their models work/they see the world.

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Key Opposition Parties OK Talks On Consumption Tax Hike Bills

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Not be out done in the global race to be the next Japan:

Key Opposition Parties OK Talks On Consumption Tax Hike Bills

June 7 (Kyodo) — Japan’s two key opposition parties decided Thursday to hold talks with the ruling Democratic Party of Japan on revising legislation to carry out social security and tax reforms, lawmakers said, offering a glimmer of hope for the government as it seeks to push through the reforms, which include a sales tax hike.

The main opposition Liberal Democratic Party formally signaled it would join the tax revision talks as requested by the DPJ, the lawmakers said.

In a shift of position, the LDP’s ally, the New Komeito party, also agreed to join the talks and make clear its stance on the reforms.

The three largest political parties will make arrangements on when to start the talks.

While the latest move marks a step forward in Prime Minister Yoshihiko Noda’s goal to have the legislation passed during the current parliamentary session, it remains uncertain whether the parties can narrow their differences over the reforms.

Noda also faces a difficult task over the tax issue, as LDP chief Sadakazu Tanigaki, though a tax hike proponent, is expected to press Noda to dissolve the lower house at an early date in return for cooperation in passing the legislation.

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U.K. Services Unexpectedly Sustains Pace of Expansion in May

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Some hints the deficit may be large enough to sustain some growth.

No doubt this will be spun as ‘see, austerity works’, when the same deficit could have been achieved proactively with a tax cut and/or spending increase before the austerity increased the deficit the ugly way, via depressing GDP and elevating unemployment.

Headlines:

U.K. House Prices Rise as Halifax Sees Stagnation in Second Half
U.K. Retail Sales Increased in May on Warm Weather, BRC Says
U.K. Services Unexpectedly Sustains Pace of Expansion in May

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SND Foreign-Currency Holdings Hit Record on Intervention

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SND Foreign-Currency Holdings Hit Record on Intervention

By Simone Meier

June 7 (Bloomberg) — The Swiss central bank’s foreign- currency reserves surged to a record in May as the euro region’s increasing turmoil forced policy makers to step up their defense of the franc floor. Currency holdings rose to 303.8 billion Swiss francs ($318 billion) at the end of May from 237.6 billion francs in the previous month, according to a statement published on the Swiss National Bank’s website today. Walter Meier, a spokesman at the SNB in Zurich, said by telephone that a “large part” of the increase was due to currency purchases to defend the minimum exchange rate of 1.20 versus the euro.

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