Group 12 – International Monetary Fund

What is the ‘International Monetary Fund – IMF’

The International Monetary Fund (IMF) is an international organization created for the purpose of standardizing global financial relations and exchange rates. The IMF generally monitors the global economy, and its core goal is to economically strengthen its member countries.

http://www.investopedia.com/terms/i/imf.asp

What the IMF Does

The work of the IMF is of three main types:

Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention.

The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction.

Third, the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics.

https://www.imf.org/external/work.htm

The IMF and the Europe financial crisis

The financial crisis has transformed the relationship between the International Monetary Fund (IMF) and Europe. In 2006, the IMF was a struggling institution, facing a budget shortfall and shedding staff. Since 1976, the IMF had no active program in the old member states of the European Union (EU). Its influence even in new EU member states had subsided after their transition to a market economy. Hence, prior to the crisis, the IMF’s role in Europe had been confined to technical consultancy and being an interlocutor during regular but unimportant Article-IV surveillance missions.

The crisis has returned the IMF to the center of international crisis management and economic policy- making. The G20 tripled the Fund’s resources, and the IMF was able to expand its lending framework and enhance its surveillance mandate. With more than 40% of the current IMF crisis financing flowing to EU member states, the Fund’s role in Europe has changed dramatically. Initially, the IMF was called upon to intervene in individual European economies, such as Iceland, Latvia, Romania, or Hungary. As the crisis spread across Europe, the IMF has become central for the stabilization of the entire Eurozone: EU member states decided to channel hundreds of billions of Euro to Greece, Ireland, and Portugal through new joint IMF-EU programs. Moreover, the IMF became financially and politically involved in European reform initiatives, such as the European Financial Stability Fund, the European Stability Mechanism or the re-regulation of European cross-border banking.

https://ecpr.eu/Filestore/WorkshopOutline/53.pdf

GROUP 12 – Federal Reserve System (FED)

The Fed’s control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in September 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time. In December 2015, the Fed began raising interest rates and expects to gradually raise rates further.

The Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, as is the case now, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions.

While the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed’s balance sheet was $4.5 trillion—five times its pre-crisis size. Although QE has ended, the Fed has maintained the balance sheet at its current level for the time being, with the intention of reducing it to a more normal size in the long run. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools—by raising the rate of interest paid to banks on reserves and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility.

The Fed “anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” Thus, although rates are being raised, the Fed plans to maintain an unusually stimulative monetary policy for the time being. In terms of its mandate, the Fed believes that unemployment has reached the rate that it considers consistent with maximum employment (although other labor market indicators suggest some slack remains), but inflation has remained below the Fed’s 2% goal since 2013 by the Fed’s preferred measure. Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.

Sources: https://fas.org/sgp/crs/misc/RL30354.pdf; https://fred.stlouisfed.org/series/INTDSRUSM193N;

Group 12 – Brexit. How HSBC and Prudential will react?

After the referendum on 23 June 2016, where 52% of the population voted for leaving the EU, the government of the UK started the procedures to withdraw. By 2019 the UK should finally quit the EU. It brings new threats for the UK businesses and citizens which operate in Europe. One of them are HSBC and Prudential

HSBC heading into uncertainty after Brexit

It is a British multinational banking and financial services holding company headquartered in London, United Kingdom. It is the world’s sixth largest bank by total assets with total assets of US$2.410 trillion (as of December 2016).

Strategy:

  • HSBC is planning to move up to 1,000 staff from the UK to Paris due to Britain’s narrow vote to leave the EU. The leading global bank, which has assets worth $2.6 trillion (£1.9 trillion), has said it will relocate the jobs if the UK leaves the single market, a possible outcome of post-Brexit negotiations, according to the BBC.

It is possible the UK could leave the EU but remain a part of the European Economic         Area (EEA), in a model similar to that of Norway, Iceland and Liechtenstein.

  • HSBC to close 62 UK branches as judges stall Brexit vote

The high street bank HSBC has announced that it will shut down 62 branches across the UK on the same day the Supreme court made its decision on the Brexit vote.

The enormous cuts to the branch network could trigger up to 180 job losses, but the bank said it would try and redeploy staff where possible.

  • Concentrate on Asia

Douglas Flint said ‘Concern over the sustainable level of economic growth in China was the most significant feature of the first quarter and, as this moderated, uncertainty over the upcoming UK referendum on membership of the European Union intensified.’

The bank saw demand for credit investment fall as a consequence of uncertainty during the first half of the year, and a chill in equity market activity was exacerbated by factors including a crash in the price of oil.

Analysts said the bank will be more concerned about the impact of China, rather than the EU referendum, as Asia accounted for 83.5 per cent of HSBC’s global profits last year.

The United Kingdom’s Brexit vote has major implications for the insurance and financial sectors, considering their investment yields and income are likely to fall due to the pressure on interest rates. Prudential ‘s ( PRU ) stock fell over 7% following the Brexit vote on June 23 amid increased economic uncertainty and fears of falling investment income owing to subdued interest rates and falling yields.

The new head of Prudential’s M&G fund management arm, Anne Richards, has said it is considering shifting more funds to Dublin and Luxembourg after the Brexit vote.

Richards, who joined in June from Aberdeen Asset Management, said a tenth of M&G’s £255.4bn assets under management were from EU clients. “It’s a very important client base for us.”

Investors spooked by the EU referendum have been withdrawing their money, causing a 10% drop in M&G’s first-half profits. Richards said the firm was considering expanding its Dublin base, where it began building a funds business shortly after the Brexit vote, to maintain access to the EU’s single market.

“What we are trying to do … is give ourselves options so we are in a position to react and adapt,” she said. “Dublin and Luxembourg would potentially be options for us if we decide we want to have additional funds domiciled in Europe.”

This will depend on how the UK’s Brexit negotiations with the EU pan out. Under current rules, investment managers need a base in the EU to sell their funds to continental European retail investors.

Mike Wells, Prudential’s chief executive, said there was no question of leaving the UK behind after the country’s vote to quit the EU. “We like the market, we are succeeding here,” he said, adding that “at group level the immediate impact will not be material”. Prudential generates 80% of its sales and 70% of its profits outside Europe.

M&G’s operating profits dropped 10% to £225m in the first six months of the year, as investors pulled out nearly £7bn in the run-up to the EU referendum. The fund outflows are now slowing, after the Brexit vote triggered a spike in withdrawals.

Sources:

http://www.nasdaq.com/article/how-can-brexit-impact-prudential-cm643996#ixzz4Y0BGwaHX

https://www.theguardian.com/business/2016/aug/10/prudential-may-relocate-m-and-g-funds-brexit-vote

http://www.independent.co.uk/news/uk/home-news/brexit-hsbc-economy-banks-eu-referendum-latest-jobs-single-market-effects-a7104351.html

http://www.dailystar.co.uk/news/latest-news/581495/HSBC-brexit-ruling-supreme-court-bank-UK

Group 12 – Banking Innovation. First Digital Bank. Tinkoff

En passant

Today technology is read almost everywhere and banking is not an exclusion. People find more convenient to use their mobile application or internet site rather to go to the bank office.

Distributed Payments                                                                                               Many banks are allowing their customers to access accounts on their smartphones using fingerprint recognition technology. People can pay for something with just the flick of finger these days. Some bank said that the feature would be available on the iPhone 5s, 6 and 6 Plus.While Apple insisted that TouchID was secure, it said it was not a total replacement for traditional security measures and was meant to make unlocking the phone more convenient. In a similar vein, the banks have now said they wanted to make it « even easier and more convenient for customers ».
Talking Transactions
We used to have boring transactional statements, but many banks are bringing transactions alive by integrating features and apps with other plug and play services, like Google Maps, Facebook and Instagram.  An example of brining things to life is the Moven app, which alerts the user when they’re spending and getting above their budget limits by breaking the glass on their phone.
Robot force
There are a few gimmicky robot services out there, particular in Japan where robots replaced tellers (I thought we had done the same in the UK until the teller moved and I realised then they were human), but it’s not just robo-advisors that are taking off. After all, take a look at UBS who offer a real-time portfolio analytics services on a personalised basis to all of their high net worth clients through IBM’s Watson (DBS do the same).
This IBM video shows how the technology works.

http://www.bbc.com/news/technology-31508932

http://thefinanser.com/2016/02/the-top-ten-trends-in-banking-innovation.html

Tinkoff Bank story

This article will speak about Russian first-in-time completely digital bank – Tinkoff

This banks do not have offline offices , where customers can fill in an form for credit card or assurance. This bank works online. It means that potential customers can fill in an easy form on the site within 2 minutes. After this client will receive the credit card by post and can easily access of all services which Tinkoff provides: credit cards, debit cards, prepaid cards, cash-backs, assurance, professional banking and so on.

Tinkoff is one of the top credit card issuers in Russia without having offline officers and ATMs. It proves the fact that the digital banking is future which is near us.

The internet site and well developed mobile application replace physical offices

 

Today, Tinkoff is the best digital bank in Central and Eastern Europe:

Source: tinkoff.ru