Please comment:
Category Archives: Banking
My alternative proposal on trade with China
We can have BOTH low priced imports AND good jobs for all Americans
Attorney General Richard Blumenthal has urged US Treasury Secretary Geithner to take legal action to force China to let its currency appreciate. As stated by Blumenthal: “By stifling its currency, China is stifling our economy and stealing our jobs. Connecticut manufacturers have bled business and jobs over recent years because of China’s unconscionable currency manipulation and unfair market practices.”
The Attorney General is proposing to create jobs by lowering the value of the dollar vs. the yuan (China’s currency) to make China’s products a lot more expensive for US consumers, who are already struggling to survive. Those higher prices then cause us to instead buy products made elsewhere, which will presumably means more American products get produced and sold. The trade off is most likely to be a few more jobs in return for higher prices (also called inflation), and a lower standard of living from the higher prices.
Fortunately there is an alternative that allows the US consumer to enjoy the enormous benefits of low cost imports and also makes good jobs available for all Americans willing and able to work. That alternative is to keep Federal taxes low enough so Americans have enough take home pay to buy all the goods and services we can produce at full employment levels AND everything the world wants to sell to us. This in fact is exactly what happened in 2000 when unemployment was under 4%, while net imports were $380 billion. We had what most considered a ‘red hot’ labor market with jobs for all, as well as the benefit of consuming $380 billion more in imports than we exported, along with very low inflation and a high standard of living due in part to the low cost imports.
The reason we had such a good economy in 2000 was because private sector debt grew at a record 7% of GDP, supplying the spending power we needed to keep us fully employed and also able to buy all of those imports. But as soon as private sector debt expansion reached its limits and that source of spending power faded, the right Federal policy response would have been to cut Federal taxes to sustain American spending power. That wasn’t done until 2003- two long years after the recession had taken hold. The economy again improved, and unemployment came down even as imports increased. However, when private sector debt again collapsed in 2008, the Federal government again failed to cut taxes or increase spending to sustain the US consumer’s spending power. The stimulus package that was passed almost a year later in 2009 was far too small and spread out over too many years. Consequently, unemployment continued to rise, reaching an unthinkable high of 16.9% (people looking for full time work who can’t find it) in March 2010.
The problem is we are conducting Federal policy on the mistaken belief that the Federal government must get the dollars it spends through taxes, and what it doesn’t get from taxes it must borrow in the market place, and leave the debts for our children to pay back. It is this errant belief that has resulted in a policy of enormous, self imposed fiscal drag that has devastated our economy.
My three proposals for removing this drag on our economy are:
1. A full payroll tax (FICA) holiday for employees and employers. This increases the take home pay for people earning $50,000 a year by over $300 per month. It also cuts costs for businesses, which means lower prices as well as new investment.
2. A $500 per capita distribution to State governments with no strings attached. This means $1.75 billion of Federal revenue sharing to the State of Connecticut to help sustain essential public services and reduce debt.
3. An $8/hr national service job for anyone willing and able to work to facilitate the transition from unemployment to private sector employment as the pickup in sales from my first two proposals quickly translates into millions of new private sector jobs.
Because the right level of taxation to sustain full employment and price stability will vary over time, it’s the Federal government’s job to use taxation like a thermostat- lowering taxes when the economy is too cold, and considering tax increases only should the economy ‘over heat’ and get ‘too good’ (which is something I’ve never seen in my 40 years).
For policy makers to pursue this policy, they first need to understand what all insiders in the Fed (Federal Reserve Bank) have known for a very long time- the Federal government (not State and local government, corporations, and all of us) never actually has nor doesn’t have any US dollars. It taxes by simply changing numbers down in our bank accounts and doesn’t actually get anything, and it spends simply by changing numbers up in our bank accounts and doesn’t actually use anything up. As Federal Reserve Chairman Bernanke explained in to Scott Pelley on ’60 minutes’ in May 2009:
(PELLEY) Is that tax money that the Fed is spending?
(BERNANKE) It’s not tax money. The banks have– accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.
Therefore, payroll tax cuts do NOT mean the Federal government will go broke and run out of money if it doesn’t cut Social Security and Medicare payments. As the Fed Chairman correctly explained, operationally, spending is not revenue constrained.
We know why the Federal government taxes- to regulate the economy- but what about Federal borrowing? As you might suspect, our well advertised dependence on foreigners to buy US Treasury securities to fund the Federal government is just another myth holding us back from realizing our economic potential.
Operationally, foreign governments have ‘checking accounts’ at the Fed called ‘reserve accounts,’ and US Treasury securities are nothing more than savings accounts at the same Fed. So when a nation like China sells things to us, we pay them with dollars that go into their checking account at the Fed. And when they buy US Treasury securities the Fed simply transfers their dollars from their Fed checking account to their Fed savings account. And paying back US Treasury securities is nothing more than transferring the balance in China’s savings account at the Fed to their checking account at the Fed. This is not a ‘burden’ for us nor will it be for our children and grand children. Nor is the US Treasury spending operationally constrained by whether China has their dollars in their checking account or their savings accounts. Any and all constraints on US government spending are necessarily self imposed. There can be no external constraints.
In conclusion, it is a failure to understand basic monetary operations and Fed reserve accounting that caused the Democratic Congress and Administration to cut Medicare in the latest health care law, and that same failure of understanding is now driving well intentioned Americans like Atty General Blumenthal to push China to revalue its currency. This weak dollar policy is a misguided effort to create jobs by causing import prices to go up for struggling US consumers to the point where we buy fewer Chinese products. The far better option is to cut taxes as I’ve proposed, to ensure we have enough take home pay to be able to buy all that we can produce domestically at full employment, plus whatever imports we want to buy from foreigners at the lowest possible prices, and return America to the economic prosperity we once enjoyed.
China Bank Lending Cools
Lending by State owned banks is an important source of aggregate demand.
With lending both down and front loaded, a moderate first half could be a prelude to a very weak second half.
China’s Bank Lending Cools, Easing Overheating Risks
April 12 (Bloomberg) — Chinese banks extended a less-than- estimated 510.7 billion yuan ($74.8 billion) of new loans in March after the central bank told lenders to set aside bigger reserves and pace credit growth.
The figure compares with 700 billion yuan in February and the median forecast of 709 billion yuan in a Bloomberg News survey of 21 economists. The central bank released the latest data on its Web site today.
Lending Spurt
First-quarter new lending was 35 percent of the government’s full-year target of 7.5 trillion yuan, partly because Chinese banks lend more at the start of each year. March lending was down from a monthly record of 1.89 trillion yuan a year earlier. In the first three months of 2009, lending was 48 percent of the year’s total.
Meantime, a smaller trade surplus in the first quarter — down 77 percent from a year earlier at $14.49 billion — capped the increase in the nation’s foreign-exchange holdings. Li Wei, a Shanghai-based economist at Standard Chartered Bank Plc, said the U.S. currency’s strength last quarter reduced the value in dollar terms of reserves held in currencies such as the euro.
Tom Hickey on MMT
Tom Hickey Reply:
April 3rd, 2010 at 12:38 am
MDM, the key here is the MMT concept of vertical and horizontal in relation to money creation. This is sometimes called exogenous (outside) and endogenous (inside).
When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of nongovernment net financial assets.
When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.
Thus vertical money created by the government affects net financial assets and horizontal money created by banks does not, although its use in the economy as productive capital can increase real assets.
The mistake that is usually made is comparing what happens in the horizontal system with what happens at the level of government accounting. At the horizontal level, debt is the basis for horizontal money creation. Therefore, it is often assumed that debt must be the basis for the creation of money by government currency issuance. This is not the case.
Reserve accounting uses the standard accounting identities, but the meaning of “liability” is not “debt.” The husband-wife analogy for CB-Treasury accounting relationships is apt. Since a husband and wife are responsible for each others debts, neither can be indebted to the other. That is to say, reserve accounting is a fiction that does not represent real relationships, such as exist between a creditor and debtor in the horizontal system.
Moreover, government debt is not true debt either. At the macro level, the reserves that are transferred to banks through government disbursement are used to buy Tsy’s. That is, when a Tsy is bought, this involves a transfer of reserves from the buyer’s bank’s reserve account at the Fed to the government’s account (consolidating CB and Treasury as “government”).
When the Tsy’s are sold or redeemed, the reserves that were “stored” at interest are simply switched back, creating a deposit again. It’s pretty much the same as buying and redeeming a CD. It’s just a switch from demand to time back to demand in a bank account, and a switch between reserves and securities at the government level. That is to say, the government doesn’t have to draw on revenue, borrow, or sell assets to cover its “debt,” as households and firms do. It’s just a matter of crediting and debiting accounts on the (consolidated) government books, even though it may appear that there is a financial relationship occurring between the CB and Treasury due to the accounting. However, it’s just a fiction.
Therefore, the key to understanding MMT is this vertical-horizontal relationship. When one understands this, then Abba Lerner’s principles of functional finance become obvious. (1) Currency issuance through government disbursement is used to increase nongovernment net financial assets, and taxation withdraws net financial assets from nongovernment. (2) Debt issuance by the Treasury is a monetary operation for draining reserves to permit the CB to hit its target rate.
These principles are then applied to Y+C+I+G+NX to balance nominal aggregate demand with real output capacity in order to achieve full capacity utilization, hence, full employment, along with price stability. This is based not on theory requiring assumptions but on operational reality that can be represented using data, standard accounting identities, and stock-flow consistent macro models.
All of this and much more is explained in considerable detail at Bill Mitchell’s billy blog
Gold Lending
Gold has been lent to short sellers ever since I can remember. We had a lending operation at Banker’s Trust in the 1970, and it might go back thousands of years as well. So this is nothing new. Lending gold is nothing more than selling it for spot delivery and buying it for forward delivery. And if you hold gold lending it’s a way to make money with very little risk. You lend it to someone who gives you the cash as collateral and the price for the guy borrowing the gold and the incentive for you to lend it is the below market interest rate you have to pay on the cash. And when rates are near 0 as they are now, you get the cash collateral plus a fee to lend that gold, or you don’t do it. It’s also marked to market, so there’s little risk unless the short seller goes belly up if prices spike enough. (I’m sure the last run up to over 1,200 probably saw lots of short sellers getting forced out and scrambling to cover.)
And a lot of the short sellers are gold producers. They sell for forward delivery because they have to mine it and refine it before they can deliver it. And they don’t want to take the chance prices might fall, but would rather lock their profits in upfront. So if their cost of production is maybe $300/oz the might sell gold for 6 months forward or more for over $1,100 and be happy locking that in. And if they have bank loans financing their gold operations the lender may insist they do that.
So when buyers want their gold right away and producers won’t have it ready for 6 months, what brings those people together? It’s the holders of gold lending their gold in the spot market so buyers can get it right away, and then the lender getting the gold back 6 months later when the producers make their deliveries. Market forces organize this process and with current record world gold production it’s no surprise that lenders are very low on inventory, as only a fraction of the world’s gold is available for lending.
GATA is complaining that the US govt. has lent gold and is therefore artificially keeping the price of gold lower than it would otherwise be. There is some truth to the idea that lending keeps spot gold prices lower than otherwise, as it keeps the spreads between spot an forward prices ‘in line’ but you can just as easily say that lenders selling spot and buying forward keep the forward prices higher than otherwise.
So all that gold ‘missing’ from depositories is in the form of cash in the depositories and contracts to buy gold in the forward markets. And with gold being produced in record amounts for untold years into the future it’s hard to say for sure that there isn’t enough gold coming to market over that time to satisfy the demand.
One last thing. The fee paid to gold holders to lend their gold is a market price for that service. At some price holders of gold will take cash collateral, fully marked to market, plus a fee to lend their gold. It’s voluntary. It adds to their incomes. It more than pays for their storage charges. So if the desire to hold gold and not lend it goes up, that’s expressed in the higher fee paid to people who do lend. So if you watch that fee you can see the supply and demand for lending rising and falling.
Hope this helps!
It’s Ponzimonium in the Gold Market
By Nathan Lewis
We’ve had a string of amazing revelations recently regarding the world’s precious metals market. This is important stuff for anyone (like me) who holds gold as a means to avoid currency turmoil and counterparty risk.
This news has been actively suppressed in the mainstream media.
The Commodity Futures Trading Commission, a U.S. government regulatory agency, held hearings in Washington D.C. in late March regarding position limits in the futures market.
People involved in the markets have known/suspected for years that they have been manipulated by certain large entities, notably JP Morgan and Goldman Sachs.
Analysts like silver maven, Ted Butler, hedge fund giant, Eric Sprott, and the Gold Anti-Trust Action Committee (GATA) have been collecting evidence of this manipulation for years.
These hearings were supposed to be a non-event. However, despite the media lock-down, the word is getting out.
The CFTC, like the SEC, is a conflicted agency. Some people, notably Chairman Gary Gensler and Commissioner Bart Chilton, seem to want to clean up the sleaze, fraud and corruption.
The CFTC even invited GATA’s Bill Murphy and Adrian Douglas to make statements. Would you be surprised to learn that the cameras had a “technical malfunction” during Bill Murphy’s statement, which magically righted itself immediately after he finished?
After the hearing, according to Douglas, Murphy was contacted by several major media outlets for more interviews. Within 24 hours, all the interviews were canceled. All of them.
You can follow the links above to see the research that Butler, Sprott and GATA have done over the years. That was only one part of the emerging story.
The second part is the appearance of London metals trader and now whistleblower Andrew Maguire, who understands JP Morgan’s manipulation scheme inside and out.
Maguire understands the process so well that he was able to describe it to the CFTC’s Bart Chilton on the phone in real time. As in: “in a few minutes, they are going to do this, and then they will do that.”
Listen to an extended interview with Maguire and GATA’s Adrian Douglas on King World News here.
Maguire has taken some personal risks to tell all this in public. In fact, almost immediately after his initial statements, he was run over by a car while walking down the street. The driver sped away, nearly running over some other pedestrians in his haste to escape. Fortunately, Maguire survived the hit-and-run “accident” with minor injuries. What a coincidence.
The third item was during the question-and-answer session at the CFTC hearings. GATA’s Adrian Douglas.
For many years, people assumed that the London Bullion Market Association (LBMA), the world’s largest gold market, was a simple bullion market. Cash for gold. However, just in the past few months, more people are realizing that there is actually very little gold within the LBMA system.
Even long-time gold specialists like Maguire have been amazed to learn that there is no gold corresponding to the vast “gold deposits” at the major LBMA banks.
During the CFTC hearings, Jeffrey Christian of CPM Group apparently informed us that the LBMA banks actually have about a hundred times more gold deposits than actual gold bullion.
(GATA on CFTC hearing revelations, including video clips.
ZeroHedge on the LBMA “paper gold ponzi”)
This means that there are thousands of clients — Asian and Middle Eastern governments and sovereign wealth funds among them — who think they own hundreds of billions and perhaps trillions of dollars of gold bullion, and are being charged storage fees on that fantasy bullion, but they really own unsecured gold loans to the banks at a negative interest rate.
There is nothing new about this. Morgan Stanley paid several million dollars in 2007 to settle claims that it had charged 22,000 clients for storage fees on silver bullion that didn’t exist.
Imagine now that you are one of these people who think they own billions of dollars of gold in an LBMA bank depository. Now you find out that this gold doesn’t really exist.
You would ask for delivery of your gold immediately. It would be a “run on the bank.”
What about things like ETFs linked to gold? Most of them also claim, as assets, these “deposits” at the LBMA banks.
The entire gold market is complete “ponzimonium,” a word popularized by the CFTC’s Bart Chilton.
This does not even take into account the tungsten gold bar counterfeit issue, which has emerged over the past year or so.
Imagine that you are an LBMA gold bank — like JP Morgan, Goldman Sachs or HSBC. Your clients start asking for their gold, which you have been telling them is safely stored in your super-safe depository, but the gold doesn’t actually exist. It’s not so easy to buy it either, because none of the other LBMA members actually have any gold. Can you see the incentive to deliver a phony tungsten counterfeit instead? You might even ask your buddies in the U.S. government whether there is any gold left in Fort Knox that they could use — this being an issue of National Security and all.
Four 400 oz. LBMA standard bars were discovered to be tungsten counterfeits in Hong Kong. This set off a wave of investigations, turning up more such phony bars worldwide.
These were very high quality counterfeits. According to some investigators, it appears that the original source and creator of these counterfeits was the U.S. government itself. Some people put the possible number of counterfeit bars out there in the hundreds of thousands!
Let’s say you are an Asian or Middle Eastern sovereign wealth fund taking delivery on a few billion dollars’ worth of gold bullion. You find out that you were given a bunch of phony tungsten by an LBMA bank, whose original source was the U.S. government itself.
Heck, I’d be pissed. I might even want to do something about it.
(Saturday Night Live approximates the Chinese reaction to U.S. government scams and lies.)
There is an easy way to sidestep all the scams, frauds, and phony nonsense. Take delivery on your bullion, whether a 1 oz. Kruggerand or a truckload of 400 oz. institutional bars. Put it in an independent, insured depository that is not affiliated with any bank. Assay all the holdings for tungsten counterfeits. Then audit it periodically, for exact serial numbers and specified weights.
When will the music stop on this merry-go-round of lies and corruption? Who knows. But you can take your seat now, while they are still easy to come by. I suspect those who do not act in advance will eventually find that they are victims of the Ponzimonium.
What if you don’t have any gold, and have no interest in owning any? This could affect you too.
Ultimately, a lot of these “gold suppression” schemes amount to dollar-support schemes. Many of the same games were played in the late 1960s, the days of the London Gold Pool.
The London Gold Pool was an agreement among world central banks to stabilize the gold market at $35/oz. This was really an attempt to stabilize the dollar, which tended to decline in value due to the Keynesian “easy money” policies popular in those days (and today as well).
These Keynesian “easy money” policies have consequences. You can’t “easy money” your way to prosperity. Prosperity is built on “hard money” — money that is unchanging in value.
The London Gold Pool eventually blew up, of course, and the dollar fell to about 1/24th of its original value, hitting $850/oz. in 1980. This dollar decline produced a horrible decade of inflation, during the 1970s. We spent most of the 1980s and 1990s just recovering from that disaster.
Click below for a graph of U.S. Treasury interest rates from 1955 to 2005
View image
Thus, when the “New London Gold Pool” blows up, we might find that the dollar decline that has been going on since 2001 could accelerate dramatically.
You would be surprised how little most big hedge funds know about gold. But they do know the scent of blood in the water. And they learn quick.
Citibank saga draft
The Unspoken Macro of the Citibank Saga
I’m writing this because it’s how it is and I haven’t seen it written elsewhere.
Let’s assume, for simplicity of the math, Citibank pre crisis had $100 billion private capital, $900 billion in FDIC insured deposits, and $1trillion in loans (assets), which is a capital ratio of 10%. (The sub debt is part of capital. And notice this makes banks public/private partnerships, 10% private and 90% public. Ring a bell?)
This means once Citibank loses more than $100 billion, the FDIC has to write the check for any and all losses.
So if all the remaining loans go bad and become worthless, the FDIC writes the check for the entire $900 billion.
Then the crisis hits, and, again for simplicity of the math, lets assume Citibank has to realize $50 billion in losses. Now their private capital is down to only $50 billion from the original $100 billion.
This drops Citibank’s capital ratio to just over 5%, as they now have only $50 billion in private capital and 950 billion in loan value remaining as assets. So now if Citibank loses only $50 billion more the FDIC has to start writing checks, up to the same max of $900 billion.
But now Citibank’s capital ratio is below the prescribed legal limit. The FDIC needs a larger amount of private capital to give it a larger cushion against possible future losses before it has to write the check. So it’s supposed to declare Citibank insolvent, take it over, reorganize it, sell it, liquidate the pieces, etc. as it sees fit under current banking law. But the Congress and the administration don’t want that to happen, so Treasury Secretary Paulson comes up with a plan. The Treasury, under the proposed TARP program, will ‘inject’ $50 billion of capital in various forms, with punitive terms and conditions, into Citibank to restore its 10% capital ratio.
So Obama flies in, McCain flies in, they have the votes, they don’t have the votes, the Dow is moving hundreds of a points up and down with the possible vote, millions are losing their jobs as America heads for the sidelines to see if Congress can save the world. Finally the TARP passes, hundreds of billions of dollars are approved and added to the federal deficit, with everyone believing we are borrowing the funds from China for our grand children to pay back. And the Treasury bought $50 billion in Citibank stock, with punitive terms and conditions, to restore their capital ratio and save the world.
So then how does Citibank’s capital structure look? They still have the same $50 billion in capital which takes any additional losses first. Then, should additional losses exceed that $50 billion, the Treasury starts writing checks, instead of the FDIC. What’s the difference??? It’s all government, and the FDIC is legally backstopped by the treasury, and taxes banks to try to stay in the black. (riddle, what begins with g and is authorized to tax?)
More Bernanke testimony
>
> (email exchange)
>
> On Wed, Feb 24, 2010 at 10:37 AM, wrote:
>
> It’s not worthy of any comment, other than to show that even the Fed doesn’t
> understand its own operations:
>
“These constraints will discourage institutions from lending their reserve balances as they continue to work to stabilize their operations.”
>
> Banks don’t lend from their reserve balances. That’s a fact. How can you take someone
> seriously when they get an elementary fact like that wrong? Banks DO NOT use reserve
> balances to create loans. They create loans and deposits simultaneously out of thin
> air. They use reserve balances to settle payments or meet reserve requirements ONLY.
> If a bank is short reserve balances for either of these purposes, the Fed provides an
> overdraft AUTOMATICALLY at a stated penalty rate, which the bank then clears via the
> money markets or the cheapest alternative. Whether banks in the aggregate hold $1 or
> $1 trillion in reserve balances, there operational ability to create loans is the
> same . . . infinite! (Though the creation of even 1 loan requires a willing,
> credit-worthy borrow in the first place, of course.)
>
FDIC – Lets save
In case you thought Shiela Bair understands banking and the monetary system.
All this can do is further reduce aggregate demand.
The entire administration including the Fed and Tsy seems hopelessly mired in gold standard economics.
FOR IMMEDIATE RELEASE
February 22, 2010 Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov
The Federal Deposit Insurance Corporation (FDIC) is calling upon consumers across the nation during America Saves Week to consider establishing a basic savings account or boosting existing savings. FDIC Chairman Sheila Bair said, “One fundamental lesson of the financial crisis is that savings can help families withstand sudden changes in their economic well being. Establishing a savings account in a federally insured institution is a great first step to build wealth and begin a savings habit that will last a lifetime.”
The personal savings rate rose to 4.6 percent in 2009 from 2.7 percent in 2008, according to the U.S. Department of Commerce. “I am pleased to see that people are saving more of their hard-earned money and building wealth. Having personal savings for an emergency fund or saving for a future expenditure, such as a college education, can make a big difference in avoiding other costly alternatives. I’ve always been a big advocate of a back-to-basics approach to financial services; it’s my hope that Americans’ increase in savings is the beginning of a long-term trend,” Bair said.
“Money saved by consumers also provides a stable source of funding for investments in the economy that benefit all Americans,” said Bair. “In fact, a country with robust savings generally has more capital to fund investments and support economic growth over the long-term. As demonstrated recently, it is harmful to an economy when consumers spend beyond their means, financed by debt that they cannot afford to repay.”
To learn more about America Saves Week and about savings-related resources from the FDIC, please visit http://www.fdic.gov/deposit/deposits/savings.html.
Donna Kline’s interview with Warren
in case you thought Australia understood banking
Or maybe the money fund lobby is in control.
As always, the liability side of banking is not the place for market discipline.
Australia Removes Funding Guarantee Even as Economy Is Fragile
By Shani Raja
Feb. 8 (Bloomberg) — The Australian government is withdrawing a guarantee on large deposits and wholesale funding that helped banks access credit after the global financial crisis, even as the economy overall remains “fragile.”
The program is being withdrawn on March 31 on the advice of the Council of Financial Regulators, Treasurer Wayne Swan said in a news release yesterday. The removal of the guarantees indicates the nation’s banks are recovering from the impact of the credit crunch.
“This is a definite milestone on the road to recovery from the global financial crisis,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “It’s an indication the worst is over and that banks don’t need a government guarantee to legitimize them as deposit-taking entities.” A plan that gives certainty over deposits of up to A$1 million ($870,000) won’t be affected, Swan said.
The bank guarantees were introduced in October 2008 after the collapse of Lehman Brothers Holdings Inc., which roiled financial markets worldwide and helped precipitate a global recession. They enabled Australian banks to raise funds on international markets, helping lenders avoid the sorts of bankruptcies that hampered the U.S. financial system.
[top]