The health of European banks has reemerged as an important market factor this year. The IMF warned that the greatest risk to global financial stability stems from three European banks. Branches of two European banks failed the Federal Reserve’s stress test. In addition, this does not even mention the Italian banks, and especially the oldest bank in the world, Monte Paschi, which has been the immediate focus.
The results of the latest stress tests on European banks are expected to be released at 10:00 am CET (5:00 am ET). The tests cover a little more than 50 of Europe’s largest banks, with around 80% domiciled in the Eurozone.
The banks will be tested under two scenarios. The first scenario is EC’s economic forecasts made last year. That is the baseline. The second is a stress scenario developed by the European Banking Authority (EBA) and the European Systemic Risk Board. This scenario includes shocks in numerous markets.
Over 31 million consumers in Vietnam researched or purchased a product online in 2015. Just ten years ago, internet connectivity was only starting to become common. Digitization is changing how people trade. There are even more dramatic changes happening under the hood. The way trade is financed, processed and regulated has entered a period of disruption. We take this opportunity to consider the short and long-term implications of digitization of the trade process.
The FTSE Italian bank index was down nearly 40% this year through the day of the UK referendum. It fell another 33% from the results of the referendum to the middle of last week.
In recent days, investors appear to have become more optimistic that the political will from the EU and Italy is sufficient to avert a full-fledged banking crisis. The FTSE Italian bank index rose almost 8% today, posting its fourth consecutive advancing session, over which time it has risen about 24%. It leaves the bank index off around 18% since June 24.
Last month, the Federal Reserve announced that 31 out of 33 U.S. banks had passed its latest “stress test,” designed to ensure that the largest financial institutions have enough capital to withstand a severe economic shock.
After the 2007-2008 bank recapitalization by governments, which means taxpayers’ money, Europe changed the rules. The new rules require that private investors be “bailed in” before the bank is “bailed out.”
Europe’s fastidious with rules allows for exceptions and flexibility. Italy is pushing for this flexibility now, and Portugal is watching closely because its largest bank also may require recapitalization.
How exceptional are market developments? Much rests on the answer. If these are extraordinary circumstances, then Japanese intervention becomes more likely. Of course, Japanese policymakers have been inclined to intervene before the UK referendum but were seemingly rebuffed by its G7 partners.
In Europe, the designation of “exceptional circumstances” is critical. Such a designation could soften the EU strictures. Italy is on the leading the push in this direction.
In India’s most recent budget, Finance Minister Arun Jaitley formally announced that it would slash the number of Indian public sector banks from the current 27 to just 10. Consolidating India’s public sector banks will result in improved efficiency, greater economies of scale and large-scale financial institutions that can cater to the needs of a growing economy.
Large established firms increasingly rely on external sources for innovation. One way these firms are seeking to foster innovative activity is via corporate venture capital programs.
According to the National Venture Capital Association (NVCA), established firms invested more than US$4 billion in venture businesses in 2014, representing more than 10% of all venture capital investments in the US during the year.
The idea of separating out the arms of the “Big Four” banks like insurance and superannuation from their core banking business is gaining traction in Australia. It featured in the Greens’ banking and finance election policy. However, this is not a new idea; Australia is just catching up to banking reforms already made by the UK.
