The Great Debate UK
That's the provocative question posed by Willem Buiter. His latest, characteristically lengthy, blog post tackles the regulatory vogue for forcing banks to hold much greater reserves of liquid assets - in practice, government bonds.
Buiter's missive follows new rules from Britain's Financial Services Authority, which will force banks to increase their reserves of government bonds by more than a third. The rules have been met with predictable bleating from the industry, which accuses the regulator of undermining Britain's competitiveness and promoting the fragmentation of the global financial system. Another concern is the FSA's handling of the transition.
Buiter's objections are more fundamental. He's not convinced banks should be preparing to deal with a seizure in the markets. That, he argues, is the job of central banks:
It may be possible for private banks to hold enough liquid assets (government debt, effectively) on their balance sheets to survive even a major liquidity crunch without recourse to the central bank. But that would be socially inefficient. Banks are meant to intermediate short liabilities into long-term assets, and frequently into long-term illiquid assets. It’s what their raison d’être is.
from The Great Debate:
Just as Chinese stocks often rise without fundamental support, they are now tanking even though companies just had a better-than-expected earnings season.
Fears about a policy shift towards tighter liquidity are blamed for the 22 percent decline in the Shanghai market from its August peak. But those fears are largely overblown. Beijing might be talking about boosting domestic consumption, but structural reforms take time and there is little the authorities can do other than continuing to reinflate the economy in the short run.
from The Great Debate:
The U.S. venture capital industry is desperate to repair the market for initial public stock offerings, but reviving the goose that once laid hundreds of golden eggs may not get very far.
The National Venture Capital Association (NVCA) this week set out its comprehensive plan to revive the IPO market and the heady investment returns that once fueled the tightly knit venture capital industry's success.