Group 13 : International Monetary Fund : responsibilities and intervention in Europe

I. The role of the International Monetary fund

The work of the IMF is in three main types:

  1. Surveillance

The IMF oversees the international monetary system and monitors the financial and economic policies of its members. It keeps track of economic developments on a national, regional, and global basis, consulting regularly with member countries and providing them with macroeconomic and financial policy advice aimed especially at crisis-prevention.

 

  1. Technical Assistance

To assist mainly low- and middle-income countries in effectively managing their economies, the IMF provides practical guidance and training on how to upgrade institutions, and design appropriate macroeconomic, financial, and structural policies.

  1. Lending

The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms. This financial assistance is designed to help countries restore macroeconomic stability by rebuilding their international reserves, stabilizing their currencies, and paying for imports—all necessary conditions for relaunching growth. The IMF also provides concessional loans to low-income countries to help them develop their economies and reduce poverty.

 

 

  • Good to know

 

“Effective anti-money laundering and combating the financing of terrorism regimes are essential to protect the integrity of markets and of the global financial framework as they help mitigate the factors that facilitate financial abuse.”

Min Zhu, Deputy Managing Director of the IMF

In recent years, as part of its efforts to strengthen the international financial system, and to enhance its effectiveness at preventing and resolving crises, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility, and to the strengthening of financial sectors. The IMF also plays an important role in the fight against money-laundering and terrorism

II.  Intervention in Europe

 

The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. They work independently in European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB). The IMF’s work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 because of the euro area crisis.

  1.  Assessing individual countries and the euro area

The IMF provides economic analysis and policy advice as part of its standard surrveillance ard process for individual advanced and emerging European economies that culminates in regular (usually annual) consultations with individual member countries and, if relevant, EU institutions such as the ECB and EC.

In addition, IMF staff also holds consultations annually for the euro area like those held for other currency unions. Here, IMF staff exchange views with counterparts from the ECB, the EC and other European institutions in several areas, including monetary and exchange rate policies and regional fiscal policies, financial sector supervision and stability, trade and cross-border capital flows, as well as structural policies

2. Euro area integration

The IMF pays considerable attention to progress in fostering integration within the euro area to ensure the effective operation of the monetary union. The first-ever EU wide Financial Sector Assessment Program (FSAP), in March 2013, argued for a Single Supervisory Mechanism (SSM). In addition, the IMF published papers making the case for a Banking Union to strengthen the EU financial oversight and sever bank-sovereign linkages; a Fiscal Union to address gaps in the euro area’s architecture; and a more effective Economic Governance framework to better incentivize structural reforms.

3.   Providing financing

Since the start of the global financial crisis, several emerging and advanced European countries have requested financial support from the IMF to help them overcome their fiscal and external imbalances. Access to IMF resources for Europe was provided through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF).

The main financial interventions for these past 10 years are:

  • 2008-2009: financial support to emerging Europe’s countries and to Iceland when its banking system collapsed in late 2008
  • 2010: credit provided to the Euro Area Members – Greece, Ireland, Portugal and Cyprus. Credit outstanding to these members peaked in July 2014 at SDR 66.3 billion.
  • 2016: As of September 16, the IMF had active arrangements with 6 emerging market countries in Europe (Kosovo, Serbia, Bosnia Herzegovina, Albania, Ukraine, Poland) with commitments totaling about EUR 33.9 billion or $38 billion. Total credit outstanding to European members was around EUR 49.4 billion or around US$ 55.4 billion.

In most EU countries—including in Hungary, Latvia, and Romania—Fund financing was provided in conjunction with the EU, while Poland has a FCL arrangement with the Fund.

 

  1. Providing technical expertise

The IMF’s technical assistance helps countries improve the capacity of their institutions and the effectiveness of their policymaking. As such, it contributes to the overall effectiveness of the Fund’s surveillance and lending programs.

Emerging market economies in Europe—such as Albania, Bosnia and Herzegovina, Belarus, Romania, Serbia and Ukraine—are the main recipients of such assistance in a broad range of areas. However, in the wake of the global financial crisis, there have also been demands for IMF technical assistance in advanced economies. For instance, the IMF aided monitor progress on Spain’s financial sector reforms, as well as on tax policy and revenue administration issues to Denmark, Finland, Italy, Portugal, Greece, Estonia, and Slovakia.

 

 

References

http://www.investopedia.com/video/play/international-monetary-fund-imf/

https://www.imf.org/external/about/ourwork.htm

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

Group 13 : Analysis of the FED’s federal discount rates over the last 10 years

WHAT IS THE FED?

The Federal Reserve often referred to as « the Fed » is the central bank of the United States. The congress created the Fed in 1913 to help promote a safe and sound monetary and financial system for the US and since 2014, Dr. Janet L. Yellen took office as its Chair of the Board of Governors

WHAT IS THE DISCOUNT RATES OF THE FED?

The Federal Reserve discount rate is how much the U.S. central bank charges its member banks to borrow from its discount window to maintain the reserve it requires. There are three discount rates:

1.       The primary credit rate is the basic interest rate charged to most banks. It’s higher than the Fed funds rate. Here’s the current discount rate.

2.       The secondary credit rate is a higher rate that’s charged to banks that don’t meet the requirements needed to achieve the primary rate. It’s typically a half a point higher than the primary rate. Here’s more on the primary and secondary programs.

3.       The seasonal rate is for small community banks that need a temporary boost in funds to meet local borrowing needs. That may include loans for farmers, students, resorts and other seasonal activities. Here’s more on the seasonal discount rate program.

THE EVOLUTION OF THE DISCOUNT RATE

WHAT HAPPENNED ON 2007?

The discount rate is usually a percentage point above the Fed funds rate, because the Fed prefers banks to borrow from each other. It’s usually changed by the FOMC in conjunction with the Fed funds rate.

However, on August 17, 2007, the Fed board made the unusual decision to lower the discount rate without lowering the Fed funds rate to restore liquidity in the overnight borrowing markets. It was trying to combat a lack of confidence banks had with each other. They were unwilling to lend to each other because none wanted to get stuck with the other’s subprime mortgages.

The Federal Reserve cut its target interest rate Tuesday to historic lows between zero and a quarter percentage point and said it could expand a program of unorthodox lending and securities purchases.

After two days of discussion among Fed officials, the central bank said it would use every weapon from its arsenal to lift the U.S. from recession. It began by reducing its target interest rate.

 

WHAT NOW?

In a succession of moves necessitated by the financial crisis and the Great recession the committee also voted to raise the discount rate a quarter point to 1 percent in at the end of 2015. There were no dissents, even though multiple FOMC members publicly over the past few months have expressed reservations about rate hikes. The committee also approved, at the end of 2016, a quarter-point increase in the discount, or primary credit, rate from 1 percent to 1.25 percent.

In fact When the Federal Reserve (Fed) raises or lowers interest rates a chain reaction is set into motion. It’s like the domino effect. The Fed is the first domino and whatever they do — creates the chain reaction. If the fed raises interest rates, banks raise their prime rate, which in turn affects mortgage rates, car loans, business loans, and other consumer loans. However, a bank can raise or lower their prime rate without the FED making the first move. It is uncommon for most banks to change their prime rate without the fed making the first move — but it does happen.

Lower interest rates usually spur the economy by making corporate and consumer borrowing easier. Higher interest rates are intended to slow down the economy by making borrowing harder.

 

 

References:

http://www.foundationsforliving.org/articles/foundation/fedraiselower.html

https://fred.stlouisfed.org

https://www.wsj.com/articles/SB122945283457211111

https://www.federalreserve.gov/aboutthefed/bios/board/yellen.htm

https://www.federalreserve.gov/aboutthefed/default.htm

https://www.thebalance.com/federal-reserve-discount-rate-3305922

http://www.cnbc.com/2015/12/16/fed-raises-rates-for-first-time-since-2006.html

http://www.cnbc.com/2016/12/14/fed-raises-rates-for-the-second-time-in-a-decade.html

Group 13: How did HSBC aand Prudential react after the Brexit.

After the Brexit, that represent the United Kindom’s withdrawal from the European Union, some financial statement needed to made some adaptation on their strategy. It is the case for the HSBC and Prudential.

  • HSBC

HSBC chief executive Stuart Gulliver said trading operations that generate about 20 per cent of revenue for the lender’s investment bank in London may move to Paris, quantifying some of the aftershocks for the UK after Brexit.

“Activities specifically covered by EU legislation will move, and looking at our own numbers, that’s about 20 per cent of revenue,” Gulliver said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland, with John Micklethwait. The bank confirmed that he was referring to the lender’s global banking and markets operations in the UK capital.

Gulliver, who runs one of the world’s most globalised banks, praised Prime Minister Theresa May’s handling of Brexit so far and also said he doesn’t expect a trade war to erupt between the US and China under incoming US President Donald Trump. Such an outcome could damage HSBC, given it makes most of its earnings in Asia. On Tuesday in Davos, Chinese President Xi Pinjing urged business and political elites to reject protectionism in his first public rebuttal of Trump’s rhetoric on trade.

A trade war “would clearly be negative for us,” Gulliver said. “We are the biggest trade-finance bank in the world.”

Gulliver’s remarks touched on hubs of world trade ranging from the US-Mexican border to China’s Pearl River Delta. The Davos gathering has seen policy makers and chief executives address the growing populist backlash against globalization and elites that spurred both Trump’s election in November and Britain’s vote to leave the EU in June.

Gulliver said HSBC will “proceed quite slowly” after May confirmed Tuesday that Britain will leave the European Union’s single market. He repeated his pre-Brexit estimate that 1,000 jobs at the bank’s offices in London are involved with products covered by EU legislation, which probably need to move to France when the UK leaves the single market.

“Some of our fellow bankers have to make decisions quickly” if they don’t have continental subsidiaries like CCF, the French commercial bank HSBC bought in the previous decade, he said.

Gulliver’s estimate of a 20 per cent Brexit revenue exodus from London matches that of Credit Suisse chief executive Tidjane Thiam. In September, Thiam said as much as one-fifth of the volume in the bank’s London operations could be affected by the loss of EU passporting rights.

May set out her most explicit vision of Britain’s future relationship with the EU in a major speech on Tuesday, pledging a “phased process” for exiting the single market that would allow financial-services firms time to adjust. Gulliver said he expects the UK financial-services industry to quickly rebound.

“Irrespective of Brexit, London will remain a global financial center, and the revenue impact of Brexit on financial services will be made good in two to three years’ time,” Gulliver said. Although some derivative operations may need to move, other business areas such as bond and equity trading and underwriting will remain in the UK capital, he said

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, who took over from Tidiane Thiam last year , 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.

This was offset by strong performances elsewhere. Prudential’s profits rose 15% to £743m in Asia, 9% to £642m in the US and 8% to £473m in the UK. Overall, group profits increased 6% to £2.1bn, beating analysts’ forecasts of £1.8bn.

M&G’s optimal income fund, which has many European clients, has seen the biggest withdrawals, and its global dividend fund has also been hit. To offset the outflows, M&G had cut costs by 8% “around compensation, marketing and good housekeeping”, Richards said.

In early July, M&G barred redemptions  to its £4.4bn property portfolio fund, one of several property funds that suspended trading to stop the rush of withdrawals after the Brexit vote.

 

Sources :

-https://en.wikipedia.org/wiki/Brexit

-http://www.independent.co.uk/news/business/news/brexit-latest-news-hsbc-bank-move-20-per-cent-fifth-london-banking-operations-paris-chief-executive-a7532711.html

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

Group 13: The Current Banking System Into The Innovation Race: What’s are the last trends to attract customers and which bank succed the most ?

As we go on Banks are becoming more and more innovative by providing new services and technology in order to improve the clients’ and the employees’ satisfaction. There is a classment of the top ten banking innovations proposed by Thefinanser.

 

#10: Data Monetization

Banks are recognising that their data analytics can leverage market opportunity, for example NedBank in South Africa offering merchants far more business insights through market intelligence services.  Customers are willing to pay for this, and the banks that offer such services are more sticky.

#9: Social Value Chain

Banks don’t need to do all the work as customer can, and they want to.  Many banks are engaging customers in crowd sourcing ideas, with Widiba (Italy) picked as a great example.  Widiba asked customers to design the features of the next generation bank which have now been delivered.

#8: 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).

#7: The Banking of Things (BoT)1

We know the Internet of Things (IoT) is coming, and it will need BoT based upon the ValueWeb to support it, but things are already emerging in this space.  US Bank offers a link to light bulbs to flash you when something is happening on your account whilst Bradesco offers a connection between your car and your bank account.  But the example that Lukas showed was ASB from New Zealand who have created a fun way to inform children about money called Clever Kash.  Here’s the video:

#6: Intermediate Everything

It’s funny how I’ve about banks being disintermediated since the 1990s and yet they’re still here and they’re now bigger.  I don’t believe banks will be disintermediated or, as we now call it, unbundled.  Banks instead are reintermediating and rebundling everything and this trend proves it.  There are various examples of this, specifically the idea of predictive analytics and partnering to remind you that you that it’s your partner’s birthday today, for example.  The idea here – a stretch for most banks – is that the bank will not only know it’s their birthday, but will tell you what you brought them for Christmas and for last year’s present, and suggest things they might like this year.  I can’t believe this one right now, but apparently Alfa Bank (Russia), CBA (Australia), Santander (Spain) and Caixa (Brazil) are already well on the road to making this happen.

#5: Distributed Payments

How about banking as a status symbol? Show off my contactless bracelet (La Caixa, Spain), biometric tracker (RBC Canada and HBOS UK), wearable suit (Heritage Bank, Australia), wearable everything (Barclays UK)1 and more.  Hmmm … just seems to me that I can pay for something with just the flick of finger these days.

#4: 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.

#3: Love those SMEs

SME – Small to Medium Enterprises or, if you prefer, small companies – have been relatively unloved by banks in the past.  They are high risk until established and, even then, unless they get to a certain size – more than $100 million revenues – they can cause credit risk concerns.  Those concerns can be overcome by partnering with the new mentors like Funding Circle or by doing things like the Kumsal services from Deniz Bank, Turkey.  This is a platform that supports small businesses gain digital reach by offering a comprehensive suite of support from digital marketing to communications to operations to an overall online presence.

#2: Non-stop, Always On

The 24*7 bank is here, and it doesn’t cut the mustard to be 9 till 5 anymore.  Equally, some banks are becoming more than just 24*7 by offshoring, with banks such as Standard Bank, South Africa, offering a single dashboard to let relationship managers connect with their clients via any media the client prefers to use including WeChat, Facebook Messenger, Google Hangouts, Whatsap1p, etc.

#1: Everything is personal

The fact is that we now have a fully enabled digital customer platform where back office cloud and analytics can deliver real-time experiences through APIs anywhere, anytime.  The example EFMA chose for this category is Idea Bank, Poland, who offer an entire financial ecosystem for their clients from cloud-based internet banking to an Uber-styled ATM.

(thefinanser.com)

Some Banks do very great at innovation. In fact, the BAI Global Banking Innovation Awards declared DenizBank as the most innovative bank in 2014 and 2016 which made concern about some of its innovation the years.

  •   Account on Facebook

DenizBank became the first bank in the world to lets it customers access their deposit and credit card accounts through Facebook, when it launched its Facebook ‘branch‘ or app in January this year. Customers can access their accounts, see their account status and purchase history, see an overview of assets and liabilities, send money to friends on Facebook, and apply for credit cards and loans. There’s even an integrated financial and Facebook calendar. To use the service, customers have to log in to internet banking to activate Facebook banking use; they can then log in to their account on Facebook with their Facebook user name and password, and an SMS password that is sent to their mobile phone when they log in.

(blogs.forrester.com)

  • E-Government Service through Internet Banking

The DenizBank E-Government Log In Service innovation provides a new capability to DenizBank’s Internet Banking customers that both enhances the customer experience and streamlines their lives. The Internet Banking Management team provides an easy access to the e-government system with no password received from the government. Customers can log in to the e-government system with their internet banking username and password from both the DenizBank Internet Banking site and the e-government website.

(bai.org)

Sources: