Financial Regulatory Forum

FACTBOX-One year on, US’s Geithner faces big challenges

WASHINGTON, Jan 26 (Reuters) – U.S. Treasury Secretary Timothy Geithner is in the eye of a political storm as he tries to deflect congressional inquiry into his role in bailing out insurer AIG and battle a perception that his influence is diminishing.

The White House on numerous occasions in recent weeks has reiterated its support for Geithner, a former New York Federal Reserve Bank president sworn in as Treasury chief one year ago.

A decision last week by President Barack Obama to start a fight with banks by limiting their size seemed to highlight an expanding policy role for Obama economic adviser and former Fed Chairman Paul Volcker, with Geithner less visible.

Following are five challenges Geithner must grapple with as the administration tries to buttress the economy and tamp down questions about steps taken to counter the financial crisis.

* AIG BAILOUT

The bailout of insurance giant American International Group Inc has dogged Geithner for his entire first year in office, raising questions about decisions he made as head of the New York Fed to pay off the insurer’s bank counterparties in 2008. As Treasury secretary, he failed to halt hundreds of millions of dollars in bonus payments to AIG executives, stoking populist anger and cementing a public perception that he is a creature of Wall Street’s bailout culture — even though he is a lifelong public servant.

China tightening worries spook investors

By Victoria Bi and Karen Yeung

SHANGHAI, Jan 26 (Reuters) – Fears of more Chinese policy tightening spooked global markets on Tuesday after Beijing ordered some banks to comply immediately with a planned increase in reserves and a report suggested earlier attempts at curbing lending had failed.

The developments prompted concern that the central bank would get more aggressive about reining in credit to fend off inflation and asset bubbles, potentially dragging on growth in the world’s third-largest economy.

China implemented a planned increase in required reserves for some banks on Tuesday, sources said, sparking heavy selling of Asian stocks that underscored how sensitive global investors are becoming to Beijing’s tightening of monetary policy.

BREAKINGVIEWS-Chinese short-selling will be no bear’s picnic

By Wei Gu

HONG KONG, Jan 25 (Reuters Breakingviews) – Hedge funds watching China’s markets are licking their lips at what they see as the best shorting opportunity since Enron. But while plans to allow short-selling are imminent, this won’t be a bear’s picnic. Beijing’s plans to allow two-way equity bets will give foreigners little chance. Borrowing individual stocks will be tricky, even for locals.

After many countries such as the United States and UK put more severe restrictions on short-selling, China is taking the contrarian view. The short-selling regime has been three years in the making. The goal is to allow investors to express a different view on the market, and prevent market valuations getting overly stretched.

For now, foreigners are not invited. They can only short the broad market though index futures, not individual stocks. Foreigners now own up to $15 billion of China stocks through the qualified foreign institutional investor scheme. Their shorting quota is unlikely to exceed 10 percent, or $1.5 billion — just 5 percent of the daily turnover.

BREAKINGVIEWS-China’s tightening still embryonic

– The author is a Reuters Breakingviews columnist. The opinions expressed are her own –

By Wei Gu

HONG KONG, Jan 20 (Reuters Breakingviews) – The world is nervous about China putting the brakes on its bubbling financial system. Beijing has this week ordered some banks to slow their lending. Markets did not take it well. But as tightening goes, the moves are pretty limited.

Some 1 trillion yuan ($161 billion) of new loans were already advanced during the first half of January, compared with 1.6 trillion yuan for the first month of 2009. That is well above the pace that the authorities’ 2010 loan limit of 7.5

China sets index futures trading rules to limit risk

BEIJING/SHANGHAI, Jan 15 (Reuters) – China’s securities regulator is seeking to set a high bar on allowing ordinary investors to trade the country’s new financial instruments such as stock index futures, it revealed on Friday.

Though its economy is growing rapidly, China has lacked the more sophisticated financial tools of foreign markets that might help it manage unanticipated domestic stock price moves, often resulting in violent selloffs and sudden rises that can hurt ordinary investors.

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SCENARIOS-What next for China to curb property prices?

    By Lee Chyen Yee and Langi Chiang
    HONG KONG/BEIJING, Jan 14 (Reuters) – China is determined to
curb sharp rises in property prices to prevent asset bubbles,
deploying a combination of credit tightening measures, increasing
supply of affordable housing and verbal suasion.  (more…)

BREAKINGVIEWS-China’s tweaks won’t cure financial excess

– The author is a Reuters Breakingviews columnist. The opinions expressed are her own –

By Wei Gu

HONG KONG, Jan 13 (Reuters Breakingviews) – A month before China ushers in the year of the Tiger, the central bank has begun to address the effects of its roaring liquidity boom. It is encouraging that the authorities in Beijing are aware of the threat of an overheating financial system. But with so many countervailing forces, the liquidity tiger will not be tamed so easily.

Markets yelped on Tuesday after the central bank raised the minimum ratio of capital to loans at banks by 50 basis points. But this is little more than scooping water out of the sea. Some 1 trillion yuan ($146 billion) of government bills mature in the next two weeks. If they are not rolled over, three times more money would flow into the system than the reserve hike will leech out. Then there are foreign speculative flows — an estimated 378 billion yuan in the fourth quarter of 2009.

China renews vow to curb hot property market

By Langi Chiang and Ken Wills

BEIJING, Jan 13 (Reuters) – China renewed its vow to curb runaway property prices and keep a watch on excessive lending, while investors rushed to cut exposure to risk on Wednesday, a day after the central bank tightened bank reserve requirements.

Concerns a bubble was forming in China’s hot property market was one of the reasons why policymakers have repeatedly drained excess cash from the financial system and tried to cool off borrowing, and on Tuesday raised the amount banks must keep in reserve by a half percentage point.

Shanghai’s composite index fell 3 percent and led Asian equities lower, with investors caught off guard by how quickly the central bank acted. Banks and property developers were especially hard hit by fears borrowing costs in China’s booming economy would rise.

China to launch stock index futures, short selling

By Zhou Xin and Jason Subler

BEIJING/SHANGHAI, Jan 8 (Reuters) – China has approved in principle the launch of stock market index futures as well as short selling and margin trading of stocks, the stock regulator said on Friday, giving investors badly needed hedging tools.

The reforms, approved by the cabinet in 2008 but delayed by the global financial crisis, will initially be conducted on a trial basis, the China Securities Regulatory Commission (CSRC) said in a statement on its website (http://www.csrc.gov.cn/pub/newsite/. For English translation via Google, click here.)

Index futures, which will be traded on the China Financial Futures Exchange in Shanghai, will take about three months to start up, while the trial period for margin trading and short selling will come relatively soon, the CSRC said.

ANALYSIS-China auditors set to take on Hong Kong stock market

By Alison Leung

HONG KONG, Dec 30 (Reuters) – Hong Kong’s pending acceptance of Chinese accounting standards will mark an important advance in Beijing’s drive to globalise its financial sector, but could also challenge international investors with reports prepared by an industry prone to scandal.

A proposed rule change likely to take effect next year would see Hong Kong’s stock exchange let locally-listed Chinese firms report using their home accounting standards, a move designed to lower costs and keep Hong Kong competitive with Shanghai.

But concerns about supervision of Chinese auditors have led to delays, making it unlikely the exchange will meet its Jan 1 target date to implement the change.

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