Bloomberg - Fed ponders how to temper tapering without rate... 1. NORMALISATION FINANCIÈRE

Articles choisis, décembre 2013
1. NORMALISATION FINANCIÈRE
Bloomberg - Fed ponders how to temper tapering without rate increase ................................2
2. STABILITÉ FINANCIÈRE
Agefi - BNS, Généalogie des taux bas.........................................................................................7
Le Temps - Höfert, Les très importantes questions posées au quantitative easing...................9
McKinsey - QE and ultra-low interest rates : distributional effects and risks ..........................12
ECB - Financial stability review 11.2013 ...................................................................................17
Syndicate - Roubini, Back to housing bubbles .........................................................................27
3. VARIABLES DE NORMALISATION
Bloomberg - Fed reveals new concerns about long-term US slowdown .................................31
FT - S&P downgrades Netherlands' credit rating .....................................................................36
1. NORMALISATION FINANCIÈRE
Bloomberg - Fed ponders how to temper tapering without rate increase
Fed Ponders How to Temper Tapering Without Rate
Increase
By Caroline Salas Gage - Nov 18, 2013
One of Janet Y ellen’s first challenges as Federal Reserve chairman will be figuring out how to
cushion against a lurch in interest rates when she pares the pace of the central bank’s bond buying.
After sending 10-year Treasury yields more than a percentage point higher by fueling taper
expectations in May and June, policy makers now are grappling with their options when they do
reduce debt purchases that have swelled their balance sheet to a record $3.91 trillion.
The Fed’s failure so far to convince investors that tapering on its own doesn’t constitute a
tightening of policy creates the risk of more market volatility as the central bank communicates
about tools it’s never used.
Related News:
Y ellen Nomination to Get Vote This Week
Banks That Adapt to New Rules Will Fare Best
“Now, this is challenging: We’re in unprecedented circumstances, we’re using policies that have
never really been tried before -- and multiple policies -- and we’re trying to explain to the public
how we intend to conduct these policies,” Y ellen, the nominee to replace Ben S. Bernanke, told the
Senate Banking Committee Nov. 14 at her confirmation hearing in Washington. “So, it is a work
in progress, and sometimes miscommunication is possible.”
Since lowering their benchmark interest rate to near zero in December 2008, Fed officials have
relied on bond buying and forward guidance about their plans to try to spur growth. They’ve
suggested pushing back the timeline for rate increases, emphasizing they won’t raise borrowing
costs until inflation climbs, or lowering the interest they pay on the cash that banks park at the
central bank as ways to add stimulus.
New Experience
“It’s been a struggle,” said Ward McCarthy, chief financial economist at Jefferies LLC in New
Y ork. “With the shift to balance-sheet policy, there’s not a whole lot to fall back on -- both in terms
of making decisions on how to conduct balance-sheet policy and how to communicate it. It’s a
new experience both in and out of the Fed.”
Y ellen, who is currently vice chairman, told the senators that central bankers “certainly want to
diminish any unnecessary volatility” and are “trying as hard as we can to communicate clearly.”
The Fed is buying $85 billion of mortgage-backed securities and Treasuries each month. It will
slow these purchases in March, according to the median estimate of 32 economists in a Bloomberg
News survey conducted Nov. 8.
McCarthy predicts the Fed will try to push back expectations for an interest-rate increase to 2016 -though he’s not sure how. He also said the Fed may cut purchases of short-term debt and maintain
the pace of buying longer-term securities in an effort to anchor borrowing costs.
Surprised Investors
The policy-setting Federal Open Market Committee’s Sept. 18 decision not to taper surprised
investors across the globe after Bernanke outlined in May and June a possible timetable for
reducing quantitative easing.
On June 19, he said he might trim the pace of securities purchases this year and halt them by mid2014. His comments sent yields on the benchmark 10-year Treasury note as high as 2.99 percent
on Sept. 5 from 1.93 percent on May 21. Bernanke cited the rise as one reason why the Fed chose
to maintain the pace of its stimulus in September.
Y ields since then have fallen to 2.67 percent at 4:59 p.m. yesterday in New Y ork as traders pushed
back expectations for a taper, Bloomberg Bond Trader data show.
Fed officials have been “a little bit naive about the way the bond market responds to the exit” of
their record accommodation, said Ethan Harris, co-head of global economics research at Bank of
America Corp. in New Y ork. “The Fed kept on insisting that tapering was a small move, but it’s not
small symbolically.”
Extend Outlook
Harris, one of the few economists to correctly predict the Fed wouldn’t taper in September, said he
expects the central bank to extend its outlook for raising rates, in part because inflation is falling
short of its 2 percent goal. Prices are accelerating at a 0.9 percent annual rate, the personalconsumption-expenditures price index showed in September.
“Inflation is too low,” though “it wouldn’t mean they don’t taper as they’re much more
comfortable with forward guidance and interest rates than they are with the ever-expanding
balance sheet,” Harris said.
The FOMC has pledged to keep its benchmark rate near zero so long as the jobless rate remains
above 6.5 percent and the outlook for inflation doesn’t rise above 2.5 percent.
William English, an economist for the Fed Board of Governors, wrote in a paper this month that
the strategy of linking higher rates to the unemployment peg has provided effective stimulus, and
an even-lower threshold could be helpful. Joblessness was 7.3 percent in October.
Adjust Guidance
James Bullard, president of the Federal Reserve Bank of St. Louis, said in a Sept. 20 interview in
New Y ork that introducing an inflation floor is a “more likely” way for policy makers to adjust
their forward guidance than lowering the unemployment threshold. The price-acceleration floor
would be something like: “so long as inflation was running below 1.5 percent,” the Fed wouldn’t
raise interest rates, Bullard said.
U.S. central bankers probably will cut their monthly quantitative easing in January by $10 billion
and will extend the outlook for an increase in interest rates at a later point because it would be “too
confusing to markets” to do both at the same time, Harris said.
Asset purchases and communications about the path of policy rates are “discrete tools that can be
deployed independently or in varying combinations,” Atlanta Fed President Dennis Lockhart said
Nov. 12 in a speech in Montgomery, Alabama. “They can be thought of as a particular policy-tool
mix chosen to fit the circumstances at this particular phase of the recovery,” and “going forward, it
may be appropriate to adjust” the mix.
Market Rout
Some investors still are convinced there could be another market rout once the Fed reduces its
bond buying.
“It probably won’t be any different when the Fed ultimately is forced to taper: What you saw in
May and June of this year was simply the dress rehearsal for the main event,” said Tad Rivelle,
chief investment officer for fixed income in Los Angeles at TCW Group Inc. “This is a period where
you start to skinny down and shrink your risk exposure.”
Cutting the 0.25 percent rate the Fed pays on bank reserves would help reinforce the Fed’s message
that it intends to keep monetary policy easy even as it starts to reduce its asset purchases, said Carl
Lantz, head of interest-rate strategy in New Y ork at Credit Suisse Group AG. A coupling of the
moves -- which could come in the first quarter of 2014 -- would help contain upward pressure on
bond yields resulting from a pullback in quantitative easing, he said.
Minneapolis Fed President Narayana Kocherlakota backed a lower rate in a Nov. 12 speech in St.
Paul, Minnesota, saying it would provide more monetary stimulus to the economy.
Y ellen is committed to promoting strong growth and won’t remove stimulus too soon, even as the
Fed’s bond buying comes to a close, she said Nov. 14. “The message we want to send is that we will
do what is in our power to assure a robust recovery in the context of price stability.”
To contact the reporter on this story: Caroline Salas Gage in New Y ork at [email protected]
To contact the editor responsible for this story: Chris Wellisz at [email protected]
®2013 BLOOMBERG L.P. ALL RIGHTS RESERVED.
2. STABILITÉ FINANCIÈRE
Agefi - BNS, Généalogie des taux bas
2. STABILITÉ FINANCIÈRE
Le Temps - Höfert, Les très importantes questions posées au QE
Les très importantes questions posées au quantitative easing
mardi, 19.11.2013
Le QE pourrait aboutir à une situation paradoxale. Le FMI a fait
un premier pas pour réfléchir sur les conséquences de son
utilisation répétée.
ANDREAS HÖFERT*
La conférence annuelle Jacques Polak organisée par le Fond monétaire international (FMI) est
généralement un rendez-vous académique au sommet.
Des universitaires de haut niveau discutent des nouvelles avancées de la théorie économique et
d’études empiriques avec l’équipe du FMI et des banquiers centraux. L’édition 2013, la 14e depuis sa
création, s’intitulait «Crises d’hier et d’aujourd’hui». Ben Bernanke y a participé pour la dernière fois
en tant que gouverneur de la Réserve fédérale américaine. Aussi, l’événement a pris les traits d’un
bilan des politiques mises en œuvre pendant ses huit années de mandat, et surtout des cinq dernières
années, celles qui ont suivi la faillite de Lehman.
Deux des documents présentés, rédigés par des fonctionnaires de la Fed, méritent une attention toute
spéciale car ils donnent un aperçu des rouages décisionnels de l’institution et de l’héritage de Ben
Bernanke. Le premier article, intitulé «The Federal Reserve’s Framework for Monetary Policy Recent Changes and New Questions», analyse les «innovations» de politique monétaire mises en place
par la Fed et par d’autres banques centrales dans l’environnement post-crise financière. Il conclut que
les schémas d’intervention actuels ne sont pas définitifs et pourraient continuer à évoluer. Le second
article, intitulé «Aggregate Supply in the United States: Recent Developments and Implications for the
Conduct of Monetary Policy», évalue les possibles effets négatifs de la crise financière sur le taux de
croissance potentiel et le taux de chômage «naturel» aux Etats-Unis. Ses auteurs estiment que «le PIB
potentiel est actuellement inférieur de 7% à ce qu’il serait si la trajectoire d’avant 2007 s’était
poursuivie». Cette conclusion a conduit Paul Krugman, prix Nobel d’économie, qui participait à la
conférence à s’offusquer dans un de ses éditoriaux hyper-keynésiens dans le New York Times, sur
l’économie américaine «qui s’automutile». Sa solution? Des politiques fiscales et monétaires encore
plus expansives que celles pratiquées actuellement.
Abstraction faite de cette analyse qui illustre, selon les termes attribués à Albert Einstein, qu’«on ne
peut pas résoudre un problème avec le même type de pensée que celui qui l’a créé», cette réduction
énorme du potentiel de production – près de mille milliards de dollars US par an – indique clairement
qu’il est temps de se livrer à une réflexion critique sur l’efficacité réelle du Quantitative Easing (QE).
Tout d’abord, si le PIB potentiel a diminué et le taux de chômage naturel augmenté depuis la crise aux
Etats-Unis comme l’estiment les chercheurs de la Fed, alors une politique visant à renouer avec les
chiffres d’avant la crise pourrait échouer complètement et faire plus de mal que de bien.
Ensuite, il faut se demander, dans le déclin estimé, quelle est la part de responsabilité des politiques
économiques actuelles, et surtout de la politique monétaire ultra-accommodante. Larry Summers,
ancien candidat à la succession de Ben Bernanke à la présidence de la Fed, s’est fait l’avocat du diable
lors de la conférence. «Dans les années à venir, nous ferions mieux de nous demander comment gérer
une économie dans laquelle le taux d’intérêt nominal nul est un frein chronique et systémique à
l’activité économique. […] On ne peut que s’inquiéter lorsque l’on constate que la politique monétaire
et la politique fiscale produisent aujourd’hui moins de résultats que par le passé», a-t-il martelé,
fustigeant les mesures prises, dont l’objectif fondamental consiste selon lui à «réduire les prêts, les
emprunts et à gonfler les prix des actifs». Le point de vue de Larry Summers commence à trouver un
écho parmi les économistes.
L’argent facile débloqué par les programmes d’assouplissement quantitatif, qui distord les prix de
marché, pourrait en fait produire des résultats contraires à ses objectifs. Au lieu d’encourager l’octroi
de crédit et de dynamiser l’activité du secteur privé, cette politique, associée à l’objectif
d’assainissement des bilans des intermédiaires financiers, incite ces derniers à acheter des actifs sûrs,
donc à coopérer avec la Fed et à garantir un financement à peu de frais au gouvernement américain, au
lieu de prêter aux particuliers. On parle habituellement d’«effet d’éviction» lorsque la dette publique
fait grimper les taux d’intérêt, renchérissant le financement des investissements du secteur privé. Le
QE pourrait aboutir à une situation paradoxale.
En maintenant artificiellement les taux d’intérêt à un bas niveau et en redirigeant en fin de compte tout
l’argent bon marché vers le gouvernement, il pourrait produire exactement les mêmes résultats qu’un
effet d’éviction classique alors que les taux d’intérêts sont bas. Cette question mérite plus ample
réflexion. Il me semble que la dernière conférence du FMI a fait un premier pas dans ce sens.
* Chef économiste,
UBS Wealth Management
2. STABILITÉ FINANCIÈRE
McKinsey - QE and ultra-low interest rates
Distributional effects and risks (executive summary)
McKinsey Global Institute
QE and ultra-low interest rates: Distributional effects and risks
Executive summary
In response to the global financial crisis and recession that began in 2007, the
major central banks in a number of advanced economies—in particular, the
United States, the United Kingdom, the Eurozone, and Japan—embarked upon
an unprecedented effort to stabilize and inject liquidity into financial markets. In
the immediate aftermath of the crisis, central bank action was aimed at preventing
a catastrophic failure of the financial system. In the years since, central banks
have continued to employ a range of conventional and unconventional monetary
policy tools to support growth and revive the flow of credit to their economies.
There is widespread consensus that the decision to implement these monetary
policies was an appropriate—and indeed necessary—response in the early
days of the financial crisis given the magnitude of the economic shock to the
global economy. More than five years later, however, central banks are still using
conventional monetary tools to cut short-term interest rates to near zero and, in
tandem, are deploying unconventional tools to provide liquidity and credit market
facilities to banks, undertaking large-scale asset purchases—or quantitative
easing (QE)—and attempting to influence market expectations by signaling future
policy through forward guidance. These measures, along with a lack of demand
for credit given the global recession, have contributed to a decline in real and
nominal interest rates to ultra-low levels that have been sustained over the past
five years.
Many academic and central bank studies have found that the measures taken
by central banks prevented a deeper recession and higher unemployment
than would have otherwise been the case. Estimates from macroeconomic
models by the US Federal Reserve, the Bank of England, and others show that,
compared with a scenario in which no such action was taken, unconventional
monetary policies have improved GDP by between 1 and 3 percent, reduced
the unemployment rate by about 1 percentage point, and prevented deflation.1 If
the emergency measures employed at the start of the financial crisis did indeed
head off an uncontrolled downward spiral of the global financial system, then the
macroeconomic value of the damage prevention could be far larger than these
estimates indicate.
This paper is our contribution to an ongoing debate about these central bank
policies. In particular, our research seeks to shed light on the distributional effects
of unconventional monetary policies at the microeconomic level—including the
impact on governments, non-financial corporations, banks, insurance companies,
pension funds, and households. Although there are always some distributional
1
For a summary of the literature, see Global impact and challenges of unconventional monetary
policy, International Monetary Fund (IMF) policy paper, October 7, 2013; John C. Williams,
“Lessons from the financial crisis for unconventional monetary policy,” presented at a panel
discussion at the National Bureau of Economic Research (NBER) Conference in Boston,
Massachusetts, October 18, 2013; and Eric Santor and Lena Suchanek, “Unconventional
monetary policies: Evolving practices, their effects and potential costs,” Bank of Canada
Review, spring 2013.
1
2
effects from monetary policy, these are likely to be far larger than in normal
economic times given the scale of monetary actions in recent years. Specifically,
in our research we assess the impact on net interest income for these groups in
the United States, the United Kingdom, and the Eurozone, evaluate the effect of
low rates on asset prices and any corresponding wealth effect for households,
and consider what impact ultra-low rates have had on cross-border capital flows
to emerging markets. We conclude with a discussion of potential risks, in the light
of this micro research, as either these policies are tapered and interest rates rise,
or rates remain low.
Our headline finding is that ultra-low interest rates have produced significant
distributional effects if we focus exclusively on the impact on interest income
and interest expense. Although governments have borne substantial costs
generated by the financial crisis and the resulting recession, ultra-low interest
rates prompted by monetary policy have substantially lowered their borrowing
costs, enabling them, in some cases, to finance higher public spending to
support economic growth. Non-financial corporations have also benefited as the
cost of debt has fallen, although this has not translated into increased investment,
perhaps because the recession has lowered their expectations of future demand.
Households, in contrast, have fared less well in terms of interest income and
expense, although the negative impact on household income may be offset by
wealth gains from increased asset prices.
Our analysis merits two caveats. In all analysis on the impact of unconventional
monetary policies and ultra-low interest rates, we, along with other researchers
on the topic, face the challenge of assessing what would have happened if
these policies had not been implemented—the so-called counterfactual. This
is unknown and indeed unknowable. Nevertheless, we have used a variety of
approaches to estimate how the actual outcome would have compared with
a situation in which central banks had not acted the way they did. In addition,
our microeconomic analysis looks only at the direct impact on specific sectors,
not second-order effects across the economy. It seems likely that central bank
actions stabilized the financial system, limited the damage from the financial
crisis, and dampened the recession, thereby benefiting all actors in the economy.
Nonetheless, we believe that examining the microeconomic consequences—even
if these were unintended—is useful in understanding the distributional effects and
risks of ultra-low rate policies and in shedding light on the future as these policies
are reversed.
Our major findings include the following:
ƒ Between 2007 and 2012, ultra-low interest rates produced large distributional
effects on different sectors in advanced economies through changes in
interest income and interest expense. By the end of 2012, governments in
the United States, the United Kingdom, and the Eurozone had collectively
benefited by $1.6 trillion, through both reduced debt service costs and
increased profits remitted from central banks. Meanwhile, households in these
countries together lost $630 billion in net interest income, with variations in
the impact among demographic groups. Younger households that are net
borrowers have benefited, while older households with significant interestbearing assets have lost income. Non-financial corporations across these
countries benefited by $710 billion through lower debt service costs.
McKinsey Global Institute
QE and ultra-low interest rates: Distributional effects and risks
ƒ The era of ultra-low interest rates has eroded the profitability of banks
in the Eurozone.2 Effective net interest margins for Eurozone banks have
declined significantly, and their cumulative loss of net interest income totaled
$230 billion between 2007 and 2012. In contrast, banks in the United States
have experienced an increase in effective net interest margins as interest paid
on deposits and other liabilities has declined more than interest received on
loans and other assets. From 2007 to 2012, the net interest income of US
banks increased cumulatively by $150 billion. Over this period, therefore,
there has been a divergence in the competitive positions of US and European
banks. The experience of UK banks falls between these two extremes.
ƒ Life insurance companies, particularly in several European countries, are being
squeezed by ultra-low interest rates. Those insurers that offer customers
guaranteed-rate products are finding that government bond yields are below
the rates being paid to customers. If the low interest-rate environment were
to continue for several more years, many of these insurers would find their
survival threatened.
ƒ The impact of ultra-low rate monetary policies on financial asset prices is
ambiguous. Bond prices rise as interest rates decline, and, between 2007
and 2012, the value of sovereign and corporate bonds in the United States,
the United Kingdom, and the Eurozone increased by $16 trillion. But we found
little conclusive evidence that ultra-low interest rates have boosted equity
markets. Although announcements about changes to ultra-low rate policies do
spark short-term market movements in equity prices, these movements do not
persist in the long term. Moreover, there is little evidence of a large-scale shift
into equities as part of a search for yield. Price-earnings ratios and price-book
ratios in stock markets are no higher than long-term averages.
ƒ Ultra-low interest rates are likely to have bolstered house prices, although
the impact in the United States has been dampened by structural factors
in the market. At the end of 2012, house prices may have been as much as
15 percent higher in the United States and the United Kingdom than they
otherwise would have been without ultra-low interest rates, as these rates
reduce the cost of borrowing. We based this estimate on academic research
using historical data that suggest how housing prices rise as interest rates
decline. In the United Kingdom, it is plausible that this relationship holds today.
However, in the United States, it is unclear whether the historical relationship
between interest rates and housing prices holds today because of an
oversupply of housing and tightened credit standards.
ƒ If one accepts that house prices and bond prices are higher today than they
otherwise would have been as a result of ultra-low interest rates, the increase
in household wealth and possible additional consumption it has enabled would
far outweigh the income lost to households. However, while the net interest
income effect is a tangible influence on household cash flows, additional
consumption that comes from rising wealth is less certain, particularly since
asset prices remain below their peak in most markets. It is also difficult today
for households to borrow against the increase in wealth that came through
rising asset prices.
2
We should point out that other factors are also at work here beyond just low interest rates.
3
4
ƒ Ultra-low interest rates appear to have prompted additional capital flows
to emerging markets, particularly into their bond markets. Purchases of
emerging-market bonds by foreign investors totaled just $92 billion in 2007
but had jumped to $264 billion by 2012. This may reflect a rebalancing of
investor portfolios and a search for higher returns than were available from
bonds in advanced economies, as well as the fact that overall macroeconomic
conditions and credit risk in emerging economies have improved. In some
developing economies, including Mexico and Turkey, the percentage increases
in capital inflows into bonds have been even larger. Emerging markets that
have a high share of foreign ownership of their bonds and large currentaccount deficits will be most vulnerable to large capital outflows if and when
monetary policies become less accommodating in advanced economies and
interest rates start to rise.
This paper is divided into five chapters. In Chapter 1, we provide a brief overview
of central bank measures since the start of the financial crisis. Chapter 2
discusses the impact of central bank action on the interest income and expense
of various sectors in advanced economies. In Chapter 3, we assess the effects of
central bank action on asset prices and its impact on wealth and consumption.
In Chapter 4, we examine the evidence that ultra-low rate monetary policies have
prompted a surge in capital flows to emerging economies. Finally, in Chapter 5,
we discuss the potential risks that may arise when interest rates begin to rise as
well as if they remain at ultra-low levels.
2. STABILITÉ FINANCIÈRE
ECB - Financial stability Review 11.2013 [overview]
OVERVIEW
Financial stress has remained moderate in the euro area in recent months, despite periods of
considerable global financial market turbulence. Measures of systemic stress in the banking sector
have declined markedly since the peaks that followed the intensification of the sovereign debt crisis
in mid-2011 (see Chart 1). A broad composite measure of systemic stress across major euro area
financial asset classes has fallen even further, to lows not seen since global financial strains first
emerged in the summer of 2007.
Euro area stress
moderate amid
financial market
stress…
This resilience partly reflects the improvement of euro area fundamentals since the height of the
euro area crisis in 2011. Fiscal consolidation and structural reforms have continued in the euro area,
though at an uneven pace across countries. At the same time, higher capital and liquidity buffers
are being built up in the banking sector, strengthening shock-absorption capacity, which should
improve bank performance over time. Complementing national policy measures, tangible progress
has been made towards building a banking union. The progress in the area of banking is matched
E\ GHYHORSPHQWV LQ ILQDQFLDO PDUNHWV ZKHUH ERQG DQG HTXLW\ PDUNHW LQGLFDWRUV ° VXFK DV \LHOG
GLIIHUHQWLDOVDQGFXUYHVORSHV°UHIOHFWDIDYRXUDEOHUHHYDOXDWLRQRIHXURDUHDIXQGDPHQWDOVYLVjYLV
other economic regions (particularly emerging market economies), as well as somewhat lower
intra-area fragmentation over the last half-year.
… as euro area
fundamentals
continue improving
Notwithstanding these advances, the euro area adjustment process remains incomplete. Further
efforts are needed to remove the risk of further negative interactions, at the country level, among
stressed sovereigns, diverging economic growth prospects and bank fragility. First, there is a need
to correct a loss of competitiveness which has restrained economic growth in some countries, as
well as to further address remaining public and private sector indebtedness. Second, the outlook for
EDQNSURILWDELOLW\UHPDLQVZHDNWKLVLVSDUWO\EHFDXVHWKHSURFHVVRIEDQNUHVWUXFWXULQJ°LQFOXGLQJ
GRZQVL]LQJ ° UHPDLQV LQFRPSOHWH DQG SDUWO\
due to the protracted impact of loan losses on
Chart 1 Measures of financial market and
banking sector stress in the euro area
provisions and reported earnings. Aggravating
this,
considerable
(albeit
diminished)
-DQ°1RY
fragmentation in the availability and cost of
probability of default of two or more LCBGs
bank funding persists in some countries. To
(percentage probability; left-hand scale)
help resolve these hurdles, further progress
composite indicator of systemic stress (CISS)
(right-hand scale)
towards establishing a banking union will make
32
0.8
an important contribution. As preparations for
May FSR
the operational start of the single supervisory
28
0.7
mechanism gain momentum, complementary
24
0.6
steps are needed to establish a single and
effective European common bank resolution
20
0.5
framework.
But financial
stability conditions
remain fragile
The above-mentioned vulnerabilities, as well
as the challenges inherent in a global economy
only slowly emerging from the financial and
economic crisis, help explain the prospective
risks for euro area financial stability depicted
in Table 1. The four risks in the table are listed
VHSDUDWHO\IRUFODULW\EXWDUHQRWLQGHSHQGHQW°
rather, if triggered they have the potential to be
mutually reinforcing.
16
0.4
12
0.3
8
0.2
4
0.1
0
Four key risks to
euro area financial
stability
0.0
2007
2008
2009
2010
2011
2012
2013
Sources: Bloomberg and ECB calculations.
Note: See Charts 2.3 and 3.13 for more details on these indicators.
ECB
Financial Stability Review
November 2013
7
Table 1 Key risks to euro area financial stability
Current level
(colour) and recent
change (arrow)*
1. Economic and financial shocks that affect asset valuations and bank profitability, eroding confidence in the
euro area financial sector
2. Renewed tensions in sovereign debt markets as a result of delayed national reforms, unforeseen bank
recapitalisation needs or a rise in global bond yields
3. Global financial market turbulence, with asset mispricing and low market liquidity
4. Bank funding challenges in stressed countries that force banks to deleverage excessively
pronounced systemic risk
medium-level systemic risk
potential systemic risk
* The colour indicates the current level of the risk which is a combination of the
probability of materialisation and an estimate of the likely systemic impact of the
identified risk, based on the judgement of the ECB’s staff. The arrows indicate
whether this risk has intensified since the previous FSR.
Key risk 1: Economic and financial shocks that affect asset valuations and bank profitability,
eroding confidence in the euro area financial sector
A weak economy is
weighing on bank
profitability…
Profit generation continues to be a challenge for euro area banks. The protracted economic
downturn since 2011 has impacted credit quality, while interest margins have remained compressed.
Subdued growth prospects and high unemployment continue to weigh on bank performance in a
number of euro area countries, particularly when interacting with high private sector indebtedness
(see Chart 2). Any upward spike in interest rates from low levels, for instance given turbulence in
global bond markets, could also present challenges for bank profitability.
Recent macroeconomic data have contained
promising signs that the euro area is emerging
from a business cycle trough. Economic
sentiment data, in particular, have been pointing
to an expansion gaining traction following a
year and a half of recession in the euro area.
However, the recovery remains gradual, with
the latest ECB staff macroeconomic projection
of an increase in euro area real GDP of 1.0%
in 2014. Moreover, downside risks surrounding
the macroeconomic outlook for the euro area
dominate, also aggravated by increasing
downside risks to the health of emerging market
economies, which have contributed strongly to
global economic growth over the last years.
A potentially weak economic recovery presents
challenges for a return to more profitable
intermediation activity of banks. An increasing
recognition of loan losses suggests banks are
internalising the impacts of a weak economy
on credit quality. Non-performing loans (NPLs)
8
ECB
Financial Stability Review
November 2013
Chart 2 Unemployment, economic growth
and private sector indebtedness across euro
area countries
(percentages)
x-axis: unemployment rate (September 2013)
y-axis: real GDP growth forecast for 2013
4
4
LU
2
AT
0
MT
SK
EE
FR
DE
IE
2
BE
NL
-2
FI
IT
ES
PT
0
-2
SI
GR
-4
-6
-4
-6
-8
-8
CY
-10
0
5
10
15
20
25
-10
30
Sources: Eurostat and ECB.
Notes: The size of the bubbles shows the size of private sector
indebtedness as a percentage of GDP as of the second quarter
of 2013. Data on non-financial firms include cross-border
inter-company lending, which may be particularly relevant for
countries where international holding companies are traditionally
located (e.g. Ireland and Luxembourg).
OVERVIEW
and the associated provisioning have grown to such an extent that they have been the major
contributor to the low return on assets of euro area significant banking groups since 2009
(see Chart 3).
Around 130 significant euro area banks will fall under the direct supervision of the ECB in November 2014.
Accordingly, this Review introduces a new set of “significant banking groups³6%*V°WKHFRQVROLGDWHG
group level analogue of these significant banks, which amounts to up to 90 banking groups (depending on
data availability). Alongside this new group of banks, the Review also retains its traditional analysis of
“large and complex banking groups” (LCBGs), both at the euro area and global level. Box 5 contains
further details on these bank samples.
Up to now, impaired loan growth has been disproportionately affecting euro area banks outside
the group of largest banks (see Chart 4). Determining an appropriate degree of provision coverage
during periods of economic uncertainty is complex, given the multitude of decisions needed
regarding the appropriate classification of loans and realistic collateral valuation. But on aggregate,
although provisioning is increasing, it has barely kept pace with the deterioration in asset quality,
on average, highlighting a potential further need for additional reserves to strengthen bank balance
sheet resilience in case asset quality deteriorates further. Prima facie, provisioning needs would
be greatest where there is a combination of exposures to highly indebted households and firms,
volatile asset prices (notably property prices), rising unemployment and weak domestic demand.
Such vulnerabilities might also interact in some countries with lengthy legal procedures in case
of borrower insolvency, thereby fostering balance sheet uncertainty and constraining banks’
lending ability.
Chart 3 Pre- and post-provision return
on assets of euro area banks
Chart 4 Impaired loans of euro area banks
+°+SHUFHQWDJHVPHGLDQV
+°+SHUFHQWDJHRIWRWDOORDQVWKDQGWK
percentiles and interquartile range distribution across significant
banking groups)
median for significant banking groups
median for large and complex banking groups
pre-provision return on assets
return on assets
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
2013
2007
2008
2009
2010
2011
2012
Source: SNL Financial.
Note: Based on publicly available data on significant banking
groups that report semi-annual financial statements.
24
24
22
22
20
20
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
2007
2008
2009
2010
2011
2012 2013
Source: SNL Financial.
Note: Based on publicly available data on SBGs, including
LCBGs, that report semi-annual financial statements.
ECB
Financial Stability Review
November 2013
9
… amid a continued
strengthening of
regulatory capital
ratios…
These challenges, which are in many ways tied to the economic cycle, contrast with a structural
improvement in the solvency positions of euro area banks. The median core Tier 1 capital ratio
IRUHXURDUHDVLJQLILFDQWEDQNLQJJURXSVUHDFKHGLQWKHILUVWKDOIRI°DPRUHWKDQIRXU
percentage point increase from the beginning of the global financial crisis in 2008. This progress
also corresponds to further steps towards meeting more stringent Basel III requirements over
time. Progress in reducing simple (i.e. not risk-weighted) measures of balance sheet leverage has,
however, been more mixed. Higher capital levels, complemented by contained use of balance sheet
leverage, as foreseen in the Basel III guidelines, should provide a more solid buffer against possible
losses and a more sustainable basis for banking activity going forward.
… but further action
appears needed
Continued action is needed to mitigate lingering investor scepticism regarding euro area bank
balance sheets. Market valuations for euro area banks have remained below their book valuation
since 2009, while those of US peers have risen above 1 during 2013. While some of this difference
may relate to subdued profitability prospects for euro area banks, it also relates to questions regarding
asset quality transparency, which would benefit from more extensive disclosure, a cleaning-up of
bank balance sheets and removal of legal obstacles to NPL resolution. Importantly, the ECB has
started a comprehensive assessment of the most significant euro area banks, which are expected to
fall under its supervisory remit in November 2014. The achievement of the three main goals of this
exercise, namely to (i) enhance transparency, through the quality of information available on the
condition of banks, (ii) provide the basis for repairing those balance sheets which are stretched by
identifying and implementing necessary corrective actions as needed, and (iii) build confidence by
assuring all stakeholders that banks are fundamentally sound and trustworthy, will be positive for
financial stability. In settings where weak profits prevent banks from increasing capital via retention
of earnings, banks need to consider alternative avenues for raising additional external capital.
Key risk 2: Renewed tensions in sovereign debt markets as a result of delayed national reforms,
unforeseen bank recapitalisation needs or a rise in global bond yields
Sovereign tensions
remain contained…
Following their significant easing in the second half of 2012, sovereign tensions have remained
contained despite observed volatility in global financial markets. Spreads of ten-year sovereign
bond yields over benchmark overnight index swap rates currently stand around the same levels
DV WKRVH WKDW SUHYDLOHG LQ 0D\ WKLV \HDU ° SULRU WR WKH RQVHW RI JOREDO ERQG PDUNHW YRODWLOLW\ °
for most countries. Importantly, such spreads have fallen over the period for several countries
subject to intermittent stress over the last years, to the tune of 55 basis points in Spain, 50 basis
points in Ireland, 30 basis points in Italy and 25 basis points in Portugal. Relatively less favourable
developments for the latter two countries can be linked to political uncertainty during the summer.
In stark contrast to more severe stress phases over the last years, these uncertainties at the country
level have been digested by markets as idiosyncratic rather than systemic in nature, with limited
spillover effects on broader market sentiment. These bond market developments are also reflected
in credit default swap (CDS) pricing, where CDS spread levels for sovereigns are well below the
peaks witnessed during the more acute phases of the crisis. That said, the CDS-implied sovereignbank link in the euro area still appears stronger than in other economies such as the United States
(see Chart 5).
… but the need for
further policy action
remains
Continued adjustment towards sustainable fiscal positions has helped to underpin this improved
market sentiment towards euro area sovereigns. Such adjustment nonetheless remains incomplete
for several countries (see Chart 6). These fiscal imbalances, amplified by competitiveness shortfalls,
10
10
ECB
Financial Stability Review
November 2013
OVERVIEW
Chart 5 Sovereign and bank CDS spreads
Chart 6 General government debt
and deficits in the euro area
-XO\°1RYEDVLVSRLQWV
(2013; percentage of GDP)
x-axis: sovereign CDS spreads
y-axis: bank CDS spreads
euro area, July 2011 – May 2013
euro area, May – Nov. 2013
global, July 2011 – May 2013
global, May – Nov. 2013
450
x-axis: public deficits
y-axis: general government debt
450
180
180
Greece
400
400
160
350
350
140
300
300
120
250
250
100
200
200
80
150
150
60
100
100
40
50
50
20
160
Italy Portugal
140
Ireland
Cyprus
Belgium
France Spain
Germany Netherlands
Austria Malta
Slovenia
Finland
Slovakia
Luxembourg
120
100
80
60
40
20
Estonia
0
0
50
0
100 150 200 250 300 350 400 450
Sources: Bloomberg and ECB calculations.
Note: Average CDS spread for euro area and global LCBGs
versus the average sovereign CDS spread where the LCBGs
are headquartered (France, Germany, Italy, Spain and the
Netherlands for euro area LCBGs and the United States, the
United Kingdom, Switzerland, Denmark, Sweden and Japan for
global LCBGs).
0
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Source: European Commission.
remain closely linked to prevailing sovereign bond market premia. While the fiscal and structural
adjustment to date in several member countries has been noteworthy, implementation risks remain
a cause for concern. These concerns relate to any potential for reform fatigue or complacency at
the national level. Importantly, implementation risks are also present at the supra-national level,
where strains could re-emerge should policy advances stall towards completing EMU and durably
weakening the links between sovereigns and banks. Moreover, the current situation involving more
benign market conditions remains fragile, and could be shattered in the event of renewed global
bond market turbulence.
Fiscal vulnerabilities are only one element underlying the adverse feedback between sovereigns,
domestic banks and macroeconomic conditions at the heart of past euro area strains. Weakening
the negative feedback loop between banks and sovereigns requires a multi-pronged strategy at
WKH QDWLRQDO OHYHO WR HQVXUH SXEOLF GHEW VXVWDLQDELOLW\ ° EDODQFLQJ D QHHG WR DGGUHVV ERWK ILVFDO
LPEDODQFHVDQGHFRQRPLFJURZWK°ZKLOHDWWKHVDPHWLPHDGGUHVVLQJWKHULVNRIFRQWLQJHQWOLDELOLWLHV
for sovereign balance sheets stemming from the banking sector. The European Commission’s rules
on state aid to banks have helped to clarify an EU-wide regime for public interventions in troubled
financial institutions. Building upon this progress, further steps are needed to clarify backstops for
ILQDQFLDOVHFWRUGLVWUHVV°EHWKH\SXEOLFRUSULYDWH°DWWKHQDWLRQDORU(XURSHDQOHYHO
ECB
Financial Stability Review
November 2013
11
11
Key risk 3: Global financial market turbulence, with asset mispricing and low market liquidity
A global bond
market correction...
Starting in May, there was a significant repricing in global bond markets, which took place largely
EHFDXVH RI FKDQJLQJ PRQHWDU\ SROLF\ H[SHFWDWLRQV LQ WKH 8QLWHG 6WDWHV ° ZLWK LQFUHDVHG IRUHLJQ
exchange market volatility and stress borne largely by emerging market economies. Euro area bond
PDUNHWLPSDFWVZHUHKRZHYHUDOVRDSSDUHQW°DQGFDQEHGLIIHUHQWLDWHGE\WZRNH\SKDVHV
... with differing
impacts on
benchmark rates and
risk premia
A first sovereign bond market adjustment phase involved sharp upward movements in key global
benchmark interest rates, compounded by increased premia on riskier assets. What became a
global bond market sell-off started in May and continued largely unabated until the end of June.
Reflecting an uncertain global economic growth outlook, the sell-off was particularly pronounced
IRU DVVHWV SHUFHLYHG DV ULVNLHU ° LQFOXGLQJ VRYHUHLJQ GHEW RI YXOQHUDEOH HXUR DUHD FRXQWULHV
VHH &KDUW 7LPHO\ IRUZDUG JXLGDQFH RQ PRQHWDU\ SROLF\ LQ -XO\ ° IURP ERWK WKH (&% DQG
WKH %DQN RI (QJODQG ° DWWHQXDWHG XQIRXQGHG XSZDUG PRYHPHQWV LQ (XURSHDQ PRQH\ PDUNHW
rates. These measures contributed to a second phase of global bond market adjustment, this time
involving a decline in global risk aversion and credit spreads. Ultimately, following this global
bond market turbulence, benchmark yields have increased across the globe. The upward drift in
yields was greatest in emerging market economies as well as perceived “safe havens”. Overall,
ten-year US benchmark Treasury yields stand over 100 basis points higher than their early May
level, similar to the average increase across a broad group of emerging market economies. For the
euro area, benchmark German Bund yields are up by 50 basis points from their May levels, while
on average bond yields in more vulnerable euro area countries such as Ireland, Italy and Spain have
fallen back to their May 2013 levels.
Chart 7 Cumulative changes in ten-year
sovereign bond yields since May
Chart 8 Bond holdings of euro area
MFIs, insurers and pension funds and
investment funds
(2 May – 15 Nov. 2013; cumulative change in basis points since
2 May)
(Q2 2013; percentage of total assets)
United States
emerging markets
Germany
stressed euro area countries
non-euro area corporate and government bonds
euro area corporate bonds
euro area government bonds
160
45
45
140
40
40
120
120
35
35
100
100
30
30
80
80
25
25
60
60
20
20
40
40
15
15
20
20
10
10
0
0
5
5
-20
0
160
140
-20
May
22 May
Bernanke
testimony
June
July
4 July ECB
forward
guidance
Aug.
2013
Sep.
Oct.
Nov.
Source: Bloomberg.
Note: “Stressed euro area countries” refers to the average of
bond yields in Ireland, Italy, Portugal and Spain.
12
12
ECB
Financial Stability Review
November 2013
0
MFIs excl. ESCB
Insurers and
pension funds
Sources: ECB and ECB calculations.
Investment funds
OVERVIEW
The financial stability consequences of this turbulence require an understanding of the distribution
RI ORVVHV ° VRPHWKLQJ ZKLFK LV XQIRUWXQDWHO\ QRW SRVVLEOH WR DFFXUDWHO\ PHDVXUH JLYHQ OLPLWHG
aggregate information on hedging. For the United States, estimates from the Federal Reserve
suggest capital losses for US bond holders alone were around 10% through early summer 2013.
Though significant, this figure was lower than the losses resulting from previous noteworthy
bond market adjustments, in particular the turbulent episode in 1994. Within the euro area, direct
exposure to debt markets as a proportion of assets appears to fall mainly on the side of institutional
investors and less on banks (see Chart 8). That said, incomplete information on where absolute
losses were greatest obfuscates a complete understanding of vulnerabilities which have resulted
from bond market turbulence to date. It cannot be ruled out that ultimate exposures are concentrated
among a limited number of entities which may now be more vulnerable to any further severe market
shock. Such losses are potentially compounded by an environment of historically low prevailing
yields in some countries, which continues to constitute a risk for institutional investors such as
insurance companies.
Uncertain
distribution of
losses…
The recent global financial market turbulence might be a harbinger of further realignment of
risk premia with fundamentals in bond markets (or even an overshooting), not least as yields on
higher-rated sovereign and high-yield corporate bonds remain at historically low levels. Moreover,
recent outflows from bond funds have been low compared with the substantial inflows since 2009,
while the outflows to date have depleted cash cushions, in particular for emerging market funds,
leaving them more vulnerable to further redemptions. Reduced cash buffers, combined with low
secondary market liquidity in emerging and corporate bond markets, could amplify future asset
price developments. In addition, recent bond losses may place additional pressure on investors to
seek yield and avoid duration, which could push investors into leveraged positions and/or lowerquality assets with low liquidity. Lastly, euro area financial stability could suffer should spillovers
accompany any onset of stress in key emerging market economies.
… while the
possibility of further
corrections remains
As the potential for further adjustment remains significant, supervisors need to ensure that banks,
insurers and pension funds have sufficient buffers and/or hedges to withstand a normalisation of
yields by stress-testing their balance sheets. Stable and predictable macroeconomic policies, as
well as efforts (such as forward guidance) to reduce market uncertainty surrounding central banks’
reaction functions, are key to ensuring a smooth exit from non-standard central bank measures
without an abrupt rise in bond yields.
Stable and
predictable policies
are key to prevent
abrupt risk reversal
Key risk 4: Bank funding challenges in stressed countries that force banks to deleverage excessively
Bank funding conditions in the euro area continue to normalise. Average composite bank funding
costs reached their lowest level for more than three years for most countries (see Chart 9) and
across all major debt instruments. In addition, country fragmentation in deposit-based funding has
subsided, with continued deposit inflows in most countries, including for several countries under
stress. As a result, euro area banks’ funding structures have continued to shift towards arguably
PRUH VWDEOH ° DQG DZD\ IURP PRUH YRODWLOH ° IXQGLQJ VRXUFHV ,QGHHG WKH VKDUHV RI ZKROHVDOH
funding and foreign deposits have fallen further, in part stemming from a gradual deleveraging
process in the euro area banking sector. A fall in excess liquidity in the euro area has corresponded
to reduced reliance on central bank funding, with around half of the initial amount of the three-year
longer-term refinancing operations (LTROs) repaid before maturity.
Bank funding
conditions continue
to improve on
aggregate…
These positive developments on aggregate have not been sufficient to eliminate fragmentation
in bank funding markets. Funding remains fragmented in terms of the availability and the cost
… but fragmentation
persists…
ECB
Financial Stability Review
November 2013
13
Chart 9 Composite bank cost of deposit and
unsecured market debt funding in selected
euro area countries
Chart 10 Net issuance of senior unsecured
(debt and covered bonds in the veuro area)
-DQ°6HSSHUFHQWDJHVPD[LPXPPLQLPXPUDQJH
across the four largest euro area countries)
-DQ°2FW(85ELOOLRQVPRQWKQHWLVVXDQFH
moving sum)
maximum-minimum range
euro area average
covered bonds (non-stressed countries)
senior unsecured debt (non-stressed countries)
covered bonds (stressed countries)
senior unsecured debt (stressed countries)
net issuance (total)
5
5
4
4
3
3
2
2
1
1
0
0
2010
2011
2012
2013
Sources: ECB, Merrill Lynch Global Index and ECB
calculations.
Note: Deposit rates (for both retail and institutional investors)
and cost of market-based debt financing for Germany, France,
Italy and Spain, weighted using outstanding amounts taken from
the ECB’s MFI balance sheet statistics.
100
100
50
50
0
0
-50
-50
-100
-100
-150
-150
-200
-200
-250
-250
-300
2010
2011
2012
2013
-300
Source: Dealogic.
Note: Excludes retained deals.
of market funding both according to the country where banks are located and their balance sheet
strength (which, in turn, is tightly correlated with bank size). While debt issuance has fallen
markedly for most banks since 2010 (see Chart 10), issuance by smaller banks from vulnerable
countries over the last 12 months is 70% down from a comparable period leading up to mid-2011.
Clearly, access to medium- and longer-term funding at sustainable costs remains a challenge for a
number of mid-sized and smaller euro area banks in stressed countries. With sizeable amounts of
bank debt maturing over the coming months, persistently high funding costs for a set of challenged
EDQNVFRXOGDPSOLI\SUHVVXUHVIRUGHOHYHUDJLQJRIDGLVRUGHUO\QDWXUH°ZLWKDQDVVRFLDWHGQHJDWLYH
impact on economic welfare and growth.
… and confidence
in banks needs to be
reinforced
While much of the prevailing fragmentation appears to have economic underpinnings, regulatory
uncertainty regarding the potential for bailing-in of creditors might also play a role. In this respect,
work continues to clarify resolution arrangements. While such measures are necessary, further
steps towards a genuine euro area banking union would durably address fragmentation, assuaging
remaining concerns of not only bank investors but also depositors.
ONGOING REGULATORY INITIATIVES
Strengthening
of the regulatory
and supervisory
frameworks has
continued…
14
14
Progress towards a safer post-crisis financial environment continues, with advancements in
European and global regulatory initiatives in the areas of financial institutions, markets and
LQIUDVWUXFWXUHV0XFKRIWKHSURJUHVVPDGHUHIHUVWREDQNV°LQSDUWLFXODUWKHDGRSWLRQRIWKH&DSLWDO
Requirements Regulation and Directive (CRR/CRD IV) that implements the Basel Committee’s
new global standards for capital and liquidity (Basel III) in the EU as of 1 January 2014.
ECB
Financial Stability Review
November 2013
OVERVIEW
But perhaps the most significant achievement within the euro area concerns the advances towards
a banking union. Among the various facets of a genuine banking union, progress has been greatest
in moving towards a single supervisory mechanism (SSM), where concrete progress continues
towards effective micro- and macro-prudential oversight being conferred upon the ECB. At the
same time, headway continues to be made in relation to a second pillar of banking union and a
QHFHVVDU\ FRPSOHPHQW WR VLQJOH VXSHUYLVLRQ ° QDPHO\ LQ WKH DUHD RI FRPPRQ UHVROXWLRQ 7KLV
includes the establishment of an EU framework for bank recovery and resolution (BRRD), which
will help to foster ex-ante clarity on the application of bail-in at the EU level, following instances
earlier this year where a heterogeneity of approaches with respect to bail-ins of banks’ unsecured
creditors created some uncertainty regarding consistency of creditor treatment in the event of
bank distress. Progress in the area of common resolution has also been made with the European
Commission’s proposal for a Single Resolution Mechanism (SRM) aimed at setting up a unique
system for resolution, with a Single Resolution Board and a Single Bank Resolution Fund, for the
resolution of banks in SSM-participating Member States. Advances in supervision and resolution
require an eventual complement of a third pillar of banking union, namely a European system for
deposit protection.
… in particular with
a banking union for
the euro area
Financial stability will benefit from continued progress in completing regulatory reform not only
for banks, but also financial markets and infrastructures. From a euro area perspective, a swift
and complete implementation of the building blocks of the banking union is arguably the most
SUHVVLQJQHHG°JLYHQLWVSRWHQWLDOWRGXUDEO\DGGUHVVNH\ILQDQFLDOVWDELOLW\WKUHDWVRXWOLQHGLQWKLV
Review, including by weakening feedback loops between banks and national authorities, whilst
also fostering a reintegration of euro area financial markets which is a necessary complement to
European Monetary Union. Notwithstanding the considerable regulatory progress to date, continued
momentum is needed to strengthen oversight not only of banks, but also of a growing shadow
banking sector and derivatives markets.
ECB
Financial Stability Review
November 2013
15
2. STABILITÉ FINANCIÈRE
Syndicate - Roubini, Back to housing bubbles
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Back to Housing Bubbles
NEW YORK ╚It is widely agreed that a series of collapsing housing-market bubbles
triggered the global financial crisis of 2008-2009, along with the severe recession that
followed. While the United States is the best-known case, a combination of lax
regulation and supervision of banks and low policy interest rates fueled similar
bubbles in the United Kingdom, Spain, Ireland, Iceland, and Dubai.
Now, five years later, signs of frothiness, if not outright bubbles, are reappearing in
housing markets in Switzerland, Sweden, Norway, Finland, France, Germany, Canada,
Australia, New Zealand, and, back for an encore, the UK (well, London). In emerging
markets, bubbles are appearing in Hong Kong, Singapore, China, and Israel, and in
major urban centers in Turkey, India, Indonesia, and Brazil.
Signs that home prices are entering bubble territory in these economies include fastrising home prices, high and rising price-to-income ratios, and high levels of mortgage
debt as a share of household debt. In most advanced economies, bubbles are being
inflated by very low short- and long-term interest rates. Given anemic GDP growth,
high unemployment, and low inflation, the wall of liquidity generated by conventional
and unconventional monetary easing is driving up asset prices, starting with home
prices.
The situation is more varied in emerging-market economies. Some that have high per
capita income ╚for example, Israel, Hong Kong, and Singapore ╚have low inflation
and want to maintain low policy interest rates to prevent exchange-rate appreciation
against major currencies. Others are characterized by high inflation (even above the
central-bank target, as in Turkey, India, Indonesia, and Brazil). In China and India,
savings are going into home purchases, because financial repression leaves
households with few other assets that provide a good hedge against inflation. Rapid
urbanization in many emerging markets has also driven up home prices, as demand
outstrips supply.
With central banks ╚especially in advanced economies and the high-income emerging
economies ╚wary of using policy rates to fight bubbles, most countries are relying on
macro-prudential regulation and supervision of the financial system to address frothy
housing markets. That means lower loan-to-value ratios, stricter mortgageunderwriting standards, limits on second-home financing, higher counter-cyclical
capital buffers for mortgage lending, higher permanent capital charges for mortgages,
and restrictions on the use of pension funds for down payments on home purchases.
In most economies, these macro-prudential policies are modest, owing to
policymakers╝political constraints: households, real-estate developers, and elected
officials protest loudly when the central bank or the regulatory authority in charge of
financial stability tries to take away the punch bowl of liquidity. They complain bitterly
about regulators╝╟interference╠with the free market, property rights, and the
sacrosanct ideal of home ownership. Thus, the political economy of housing finance
limits regulators╝ability to do the right thing.
To be clear, macro-prudential restrictions are certainly called for; but they have been
inadequate to control housing bubbles. With short- and long-term interest rates so
low, mortgage-credit restrictions seem to have a limited effect on the incentives to
borrow to purchase a home. Moreover, the higher the gap between official interest rates
and the higher rates on mortgage lending as a result of macro-prudential restrictions,
the more room there is for regulatory arbitrage.
For example, if loan-to-value ratios are reduced and down payments on home
purchases are higher, households may have an incentive to borrow from friends and
family ╚or from banks in the form of personal unsecured loans ╚to finance a down
payment. After all, though home-price inflation has slowed modestly in some
countries, home prices in general are still rising in economies where macro-prudential
restrictions on mortgage lending are being used. So long as official policy rates ╚and
thus long-term mortgage rates ╚remain low, such restrictions are not as binding as
they otherwise would be.
But the global economy╝s new housing bubbles may not be about to burst just yet,
because the forces feeding them ╚especially easy money and the need to hedge against
inflation ╚are still fully operative. Moreover, many banking systems have bigger
capital buffers than in the past, enabling them to absorb losses from a correction in
home prices; and, in most countries, households╝equity in their homes is greater than
it was in the US subprime mortgage bubble. But the higher home prices rise, the
further they will fall ╚and the greater the collateral economic and financial damage
will be ╚when the bubble deflates.
In countries where non-recourse loans allow borrowers to walk away from a mortgage
when its value exceeds that of their home, the housing bust may lead to massive
defaults and banking crises. In countries (for example, Sweden) where recourse loans
allow seizure of household income to enforce payment of mortgage obligations, private
consumption may plummet as debt payments (and event ually rising interest rates)
crowd out discretionary spending. Either way, the result would be the same: recession
and stagnation.
What we are witnessing in many countries looks like a slow-motion replay of the last
housing-market train wreck. And, like last time, the bigger the bubbles become, the
nastier the collision with reality will be.
http://www.project-syndicate.org/commentary/nouriel-roubini-warns-that-policymmakersare-powerless-to-rein-in-frothy-housing-markets-around-the-world
á !2: : 6.3124!Qspkf du!Tzoejdbuf
3. VARIABLES DE NORMALISATION
Bloomberg - Fed reveals new concerns about long-term US slowdown
Fed Reveals New Concerns About Long-Term U.S.
Slowdown
By Rich Miller - Nov 26, 2013
Federal Reserve Chairman Ben S. Bernanke and his colleagues are suffering through their own
form of cognitive dissonance: revealing new concerns about the economy’s long-term prospects
even as they forecast faster growth in 2014.
Worker productivity, a key component of an economy’s health, has risen at an annual clip of 1
percent during the last four years, as the U.S. has struggled to recover from the worst recession
since the Great Depression. That’s less than half the 2.2 percent average gain since 1983, according
to data from the Labor Department in Washington.
“Slower growth in productivity might have become the norm,” the central bankers noted at their
Oct. 29-30 meeting, according to the minutes released last week. That’s a switch from past
comments by Bernanke that the deceleration probably was temporary and would end as the
expansion continued.
A combination of forces may be at work. Chastened by the deep economic slump, corporate
executives have reduced spending plans for factories, equipment, research and development.
Startup businesses have been held back as would-be entrepreneurs find it harder to get financing
from still-cautious lenders. And out-of-work Americans have seen their skills atrophy the longer
they’re without jobs.
“We’re in a slow-growth period of unknown duration,” said Edmund Phelps, a professor at
Columbia University in New Y ork and winner of the 2006 Nobel prize in economics.
In his latest book, “Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge and
Change,” Phelps argues that the U.S. has become sclerotic as entrenched corporate interests have
stifled innovation.
Bad News
A lasting decline in the growth of productivity, or nonfarm business output per employee hour,
would be bad news for the economy. Its potential -- the ability of the U.S. to expand over an
extended period without generating inflation -- is determined by the sum of growth in the labor
force and of productivity. A slowdown in the latter would limit how fast the U.S. can develop in the
future.
That, in turn, would have far-reaching implications for policy makers, company executives,
working Americans and investors. Fed officials would need to be more alert to inflation risks if
growth picked up. Lawmakers would face even more difficulties reducing the budget deficit
because tax receipts would be lower. Companies might have to settle for reduced revenue,
employees for smaller paychecks and investors for diminished returns as a result of the slower
expansion.
Lower Returns
“The expected future return of equities is about 4 percent a year” over the next decade, Ray Dalio,
founder of Bridgewater Associates LP, a $150 billion hedge fund based in Westport, Connecticut,
said at a Nov. 12 DealBook conference in New Y ork.
U.S. stocks have gained about 25 percent annually, including dividends, since reaching a 2009 low,
as the Fed has kept its benchmark interest rate near zero and corporate profits have risen.
Northwestern University Professor Robert Gordon has argued that the spurt in productivity
associated with the computer and Internet revolution is over and as a result, the U.S. will be
consigned to a long period of “dismal” growth. He predicted last year that between 2007 and 2027,
gross domestic product per capita will rise at the slowest pace of any 20-year period in U.S. history
going back to George Washington.
“We had low productivity in the 1970s and 80s, and it certainly wasn’t a great time for the
economy,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New Y ork.
Consumer-price inflation topped out at 14.8 percent in 1980, while unemployment hit 10.8 percent
in 1982.
Scaled Back
The Fed already scaled back its estimates of the economy’s potential to expand. Central bankers
now peg the underlying growth rate at 2.1 percent to 2.5 percent, according to projections released
Sept. 18. That’s down from the 2.4 percent to 3 percent they saw in April 2011.
Based in part on the minutes, Feroli said policy makers are becoming reconciled to the possibility
that the long-run rate is even lower. The former Fed researcher puts it at 1.75 percent and blames
restrained capital spending and ebbing computer innovation for the slowdown.
In a Nov. 20, 2012, speech in New Y ork, Bernanke said the financial crisis and its aftermath
probably “reduced the potential growth rate” as discouraged workers dropped out of the labor force
and businesses held back on investment.
He voiced hope, though, that these drags on expansion wouldn’t last long. “The effects of the crisis
on potential output should fade as the economy continues to heal,” he said.
Cruising Speed
A fall in the economy’s cruising speed wouldn’t preclude it from expanding faster than this rate for
a while. It just means it couldn’t do so for a long time without overheating.
A number of Fed policy makers forecast growth will pick up in 2014 as the impact of higher taxes
and reduced government spending fades. Gross domestic product will rise 1.7 percent this year,
according to the median forecast of private economists surveyed this month by Bloomberg.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, predicts growth of 2.5 percent
to 3 percent next year. Charles Plosser, head of the Philadelphia Fed, has said he anticipates growth
at “around 3 percent.”
Such a scenario argues for investors to hold more stocks than bonds now, according to Allen Sinai,
chief executive officer of Decision Economics Inc. in New Y ork. Sinai, who sees growth
accelerating to 2.8 percent in 2014, recommended a portfolio mix of 80 percent equities and 20
percent bonds in a Nov. 18 note to clients.
Bernanke’s Argument
Bernanke has portrayed the past few years’ deceleration in productivity as temporary. In an
argument also espoused by Fed Vice Chairman Janet Y ellen, nominated to succeed him next year,
he suggested companies were forced to add workers even though economic growth was slow
because they cut payrolls so much during the recession. According to this line of reasoning, the
additional employees depressed productivity below its trend level in the short run after it climbed
an unusually elevated 5.5 percent in 2009.
The trouble with Bernanke’s argument is that it looks “a little past its sell-by date” the longer
productivity stays low, Feroli said.
Alan Blinder, who co-wrote a book with Y ellen and is himself a former Fed vice chairman, says
he’s concerned.
“Taking the Alfred E. Neuman view, what we’re experiencing is a give-back of the very surprising
productivity gains” seen during the recession, he said, referring to the Mad Magazine character
famous for saying “What, me worry?”
Productivity Puzzle
Blinder, now a professor at Princeton University in New Jersey, said he’s 65 percent convinced this
is what’s going on. “The other 35 percent of me is puzzled by how low productivity has been and
worried it might continue.”
Former Treasury Secretary Lawrence Summers has theorized the U.S. might be stuck in a “secular
stagnation” that even zero-percent interest rates can’t solve. The lesson from the crisis is “it’s not
over until it is over, and that is surely not right now,” he said during a Nov. 8 panel discussion at
the International Monetary Fund in Washington.
Summers, who dropped out of the race to succeed Bernanke in September, said “there is really no
evidence” that growth is returning to previous levels.
Bernanke, who appeared on the same panel, called the comments “fascinating.”
To contact the reporter on this story: Rich Miller in Washington at [email protected]
To contact the editor responsible for this story: Chris Wellisz at [email protected]
®2013 BLOOMBERG L.P. ALL RIGHTS RESERVED.
3. VARIABLES DE NORMALISATION
FT - S&P downgrades Netherlands' credit rating
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Last updated: November 29, 2013 9:36 am
S&P downgrades Netherlands’ credit rating
By James Fontanella-Khan in Brussels and John Aglionby in London
The Netherlands has become the latest eurozone member to be stripped of its triple A credit
rating by Standard & Poor’s, the credit rating agency, which cited weakening growth prospects
for its decision to downgrade the country.
©Getty
“The downgrade reflects our opinion that the Netherlands’ growth prospects are now weaker
than we had previously anticipated, and the real GDP per capita trend growth rate is
persistently lower than that of peers,” said S&P in a statement.
Jeroen Dijsselbloem, the Dutch finance minister, said that S&P’s downgrade to double A plus was disappointing given that the
Netherlands has recently emerged from a yearlong recession.
This month France also suffered a downgrade by S&P, when it was cut from double A plus to double A minus two years after losing its
triple A rating. Of the 17 members of the single currency bloc, only Germany, Finland and Luxembourg still hold the highest rating
from S&P.
There was little reaction to the downgrade in the bond markets; the yield on the Dutch 10-year bond was barely changed at 2.03 per
cent in early trading on Friday.
“There was no knee jerk reaction from the markets as they had already factored in that the Dutch economy was not worth a triple A
rating,” said Nick Kounis, economist at ABN Amro.
The Netherlands, the eurozone’s fifth-largest economy, has been suffering from the bursting of a housing bubble, rising unemployment
and weak consumer spending.
The country’s gross domestic product increased 0.1 per cent in the third quarter but shrank 0.6 per cent compared with the same
period a year ago.
“We do not anticipate that real economic output will surpass 2008 levels before 2017, and believe that the strong contribution of net
exports to growth has not been enough to offset a weak domestic economy,” said S&P.
The economy is expected to contract 1 per cent this year, according to the European Commission forecast, more than double the
projected eurozone contraction.
Mr Dijsselbloem accepted the downgrade, but was confident that the economy was starting to improve.
FT Video
No risk of Dutch debt crisis
“We’re a country where we have a strong structural base but we have a number of issues to deal with,”
he told CNBC. “This confirms the need to push forward with some of the reforms.”
He added that the government was making the labour market “more flexible” and the pension system
“more sustainable”, and helping stimulate the housing market. He also pointed to a slight recovery in
household spending, which accounts for two-thirds of the country’s economic output, according to official
data released on Thursday.
Sep 2013: Some US hedge
fund managers fear the
Netherlands will be the
eurozone’s next trouble spot.
Kempen Capital
Management’s Lars Dijkstra
explains why a sovereign debt
crisis is unlikely
The Dutch economy is expected to start growing in 2014 at 0.2 per cent, according to the commission.
Economists expect sustained growth of above 1 per cent to return in 2016.
“Despite the many difficulties it faces the Dutch economy remains one of the most competitive in the
eurozone,” said Mr Kounis at ABN Amro.
The other two major rating agencies, Moody’s and Fitch, recently confirmed their triple A ratings for the
Netherlands.
The unemployment rate has improved slightly since hitting 9 per cent earlier this year. In October, 8.3 per cent of the working
population were without a job, compared with 5.4 per cent in December 2011.
Property prices have been falling since 2009, and slipped a further 4 per cent in October year-on-year.
Meanwhile, Spain, which last month emerged from a two-year recession, had its outlook upgraded by S&P from “negative” to “stable”,
suggesting that a further downgrade in the next 18-24 months was unlikely for the triple B minus rated country.
The agency also upgraded the long-term credit rating of Cyprus from triple C plus to B minus, thanks to receding risks to the country’s
ability to service its debts.
Additional reporting by Josh Noble in Hong Kong
Current S&P
rating
Current S&P credit
outlook
Moody's
rating
Moody's
outlook
United
Kingdom
AAA
Negative
Aa1
Stable
Spain
BBB-
Negative
Baa3
Negative
BB
Negative
Ba3
Negative
Country
Portugal
Netherlands
AA+
Stable
Aaa
Negative
Italy
BBB
Negative
Baa2
Negative
Ireland
BBB+
Positive
Ba1
Stable
Greece
B-
Stable
C
No outlook
AAA
Stable
Aaa
Negative
AA
Stable
Aa1
Negative
Germany
France
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