Fiat currency
Gordon Long’s chart is still working nicely as we move across the time axis.
The relative expansion of central banks’ balance sheets
With twitter feeds exploding over the Euro breaching the 1.25 level, and rumors of French banks preparing for a Grexit, let’s review what central planners balance sheets look like. Via Macroblog (Atlanta Fed).
Relative to before the financial crisis, the Federal Reserve’s asset holdings are currently about 3.3 times larger. Initially, the source of that increase was the collateral associated with various temporary lending facilities that the Fed used to address the financial panic. Those assets were then replaced on net by purchases under the first large-scale asset purchase program in 2009. Then in late 2010, asset holdings increased further as a result of a second large-scale asset purchase program.
Of course, size isn’t everything. While it might be tempting to try and interpret the change in the size of the central bank’s balance sheet as a summary statistic of the degree of monetary policy accommodation, as Dave Altig’s post points out, that interpretation is not so straightforward. Increasing the size of the balance sheet is not the only thing a central bank can do to ease monetary policy when short-term interest rates are very low. For example, in late 2011 the Fed began a maturity extension program that changed the composition of the assets on the balance sheet, but this program did not materially alter the size of the balance sheet.
With this caveat in mind, the following chart compares the proportionate changes in the size of asset holdings of five central banks over the period from the first quarter of 2007 through the first quarter of 2012: the Federal Reserve (FR), the Bank of England (BE), the European Central Bank (ECB), the Bank of Canada (BC), and the Bank of Japan (BJ).
VXN Futures
Via Vix and more.
You really need a scorecard to keep up with the new product launches at the CBOE. Today was potentially a big one, with the launch of futures on the Nasdaq-100 Volatility Index, which most of us simply refer to as VXN or Vixen.
As the table below shows, the VIX continues to account for approximately 99% of the volatility index futures at the CBOE Futures Exchange (CFE). Today VXN futures (VN) traded 20 contracts on its opening day. While futures in the CBOE Emerging Markets ETF Volatility Index (VXEEM) are currently positioned at the #2 product at the CFE, VXN futures certainly have a lot of potential, with the likes of Apple (AAPL), Facebook (FB) and Google (GOOG) and other technology high fliers folded into this security.
On a related note, for anyone who may be interested, I authored the feature article, The Expanding Volatility Megaplex, in the current edition ofExpiring Monthly. This article chronicles the history of volatility indices and looks at how the CBOE has recently begun to aggressively expand the scope of volatility indices and turn these into product platforms for futures, options and exchanged-traded products.
UK Banks Want to Charge Customers for Accounts
Guest post by Azizonomics.
This is nuts. UK banks want to charge customers for the privilege of handing over their money and letting banks gamble it in the global derivatives casino.
From the Telegraph:
A groundswell of support for change is understood to be gathering among the authorities. The Treasury’s advisers on the Independent Commission on Banking and the Office of Fair Trading are said to be also backing the proposals, alongside the treasury select committee and financial regulators.
Britain is the only country in Europe to operate a “free-in-credit” model of current account banking. Instead of levying fees on an account, lenders make their money through “stealth charges” on overdrafts and cross-selling of other products. Only India and Australia run equivalent models.
Regulators and officials want to reform the system to boost competition by making it easier to compare rival accounts. They also believe so-called “free banking” encourages mis-selling of financial products, exposes banks to compensation risks and lets customers down.
So the impression that bankers and regulators have seems to be that banks are doing customers a favour by holding onto their money and occasionally losing it all buying junk securities.
Nope. In a free market, banks that tried to charge customers for the privilege would be laughed out of the marketplace. Banks — by their very definition as intermediaries — generate profits from making good investments, not by charging customers for the privilege of holding their money.
JPMorgan Gave Risk Oversight to Museum Head-good enough?
Surprised? Hardly. This is not a fairy tale, but reality. Corporate governance 101 anybody? From Bloomberg Businessweek.
The three directors who oversee risk at JPMorgan Chase & Co. (JPM) (JPM) include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire and the chief executive officer of a company that makes flight controls and work boots.
What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years.
“It seems hard to believe that this is good enough,” said Anat Admati, a professor of finance at Stanford University who studies corporate governance. “It’s a massive task to watch the risk of JPMorgan.”
News That Matters
Ft.com
Some of Europe’s biggest fund managers have confirmed they are dumping euro assets amid rising fears over a possible Greek exit from the eurozone and single currency turmoil. The euro’s sudden fallthis month caught many investors by surprise. Europe’s single currency has lost 5 per cent in the past three weeks after barely moving against the US dollar for much of the year. On Thursday, the euro hit a fresh 22-month low at $1.2514. http://www.ft.com/intl/cms/s/0/92f5c37a-a5a1-11e1-a77b-00144feabdc0.html#axzz1vr0JKlSp
Europe’s political leaders need to make a “brave leap” towards greater fiscal union to address the eurozone’s deepening debt crisis, the head of the European Central Bank urged on Thursday. Mario Draghi said his institution may have bought the eurozone time through its massive injection of cash into Europe’s banking system and sovereign bond markets but now it needed to embrace much closer integration. http://www.ft.com/intl/cms/s/0/281e032c-a5b6-11e1-b77a-00144feabdc0.html#axzz1vr0JKlSp
Wholesale brokerages including Knight Capital and Citadel suffered trading losses that could top $100m as a result of computer glitches in Nasdaq OMX’s software on the morning of Facebook’s trading debut last Friday. Problems with the exchange’s trading software meant the brokers were unable to calculate their precise shareholdings in the social network through more than two hours of share trading, people close to the firms said. http://www.ft.com/intl/cms/s/0/68cc8164-a5c5-11e1-a3b4-00144feabdc0.html#axzz1vr0JKlSp
All news below.
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