Economy

Six Banks Fined $6 Bn Over Rigging of Forex Markets


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Six of the world’s biggest banks will pay nearly $6 billion — bringing the total sums paid in connection with alleged forex manipulation to about $10 billion. These banks are also among the world’s biggest foreign-exchange traders. Five of them agreed to plead guilty to charges tied to a currency-rigging probe as they seek to wind down almost half a decade of enforcement actions. Separately, the Federal Reserve fined Bank of America Corp $205 million for unsound practices in foreign exchange.

Citicorp, JPMorgan Chase & Co., Barclays Plc and Royal Bank of Scotland Plc agreed to plead guilty to conspiring to manipulate the price of US dollars and euros in settlements with the Department of Justice. UBS Group AG agreed to plead guilty to charges related to interest-rate manipulation. They were the first to cooperate with antitrust investigators and were granted immunity in the currency probe.

Between December 2007 and January 2013, forex traders at Citi, JPMorgan, Barclays, RBS  and a few other big banks colluded by sharing proprietary information on pending client orders ahead of the 4 p.m. fix. This information sharing was allegedly done through instant-message groups – with catchy names such as “The Cartel,” “The Mafia,” and “The Bandits’ Club” – that were accessible only to a few senior traders at banks who are the most active in the forex market.

The audacious nature of the dealing desks is revealed in the chatroom transcripts as one employee at Barclays remarks, “If you aint cheating, you aint trying.

The banks’ clients suffered from the market being skewed. The price movements arising from the manipulation are so small that holidaymakers are unlikely to notice a big difference when buying foreign currency.

The embarrassing revelation that traders colluded to manipulate foreign exchange rates came so soon after they paid billions of dollars to settle claims that their traders had tried to rig interbank lending rates. It has raised questions as to whether the global banks learnt any lesson from the previous scandal and strengthened their governance, risk management, compliance and audit policies and procedures effectively to ensure that their activities complied with safe and sound banking practices. Given the size of the global foreign exchange market of $5-trillion-a-day, a small manipulation may reap a huge profit for the traders.

Global banks have now paid more than $10 billion over the forex scandal, exceeding the $9 billion paid by a larger group of institutions to settle the London interbank offered rate (Libor) — an interest rate benchmark — rigging claims.

The DoJ, the DFS and other agencies are continuing to investigate other banks, including HSBC and Deutsche Bank, for alleged forex rigging and settlements in those cases could come later this year. This kind of manipulation further undermines trust in the financial system, which has been through a series of scandals.

Reference

David McLaughlin, Tom Schoenberg and Liam Baughan: “Six Banks Pay $5.8 Billion, Five Plead Guilty to Market Rigging”, BloombergBusiness, 20 May 2015.

Gina Chon, Caroline Binham and Laura Noonan: “Six banks fined $5.6bn over rigging of foreign exchange markets”, Financial Times, 20 May 2015.

Karen Freifeld, Steve Slater and Katrina Bart: “Major banks admit guilt in forex probe, fined $6 billion”, Reuters, 20 May 2015.

Economy

Allowing Banks to Fail


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Shortly after the financial crisis broke out in 2008, regulators around the world embarked on a regulatory reform in order to prevent such a crisis from happening again. This regulatory reform is as complex and multi-layered as the crisis itself. Many observers wish there was a silver bullet that would solve the crisis with one clean shot. But, there is no such silver bullet.

Too Big to Fail

It refers to banks that are so big, so interconnected or so important that their failure might bring down the entire financial system. Consequently, the government has an incentive to step in and bail out these banks in order to prevent a systemic meltdown.

Banks that were deemed “too big to fail” therefore operated with implicit government support that was provided free of charge. Such support, however, can induce banks to engage in risky transactions. If things go well they take the profit, but if things go wrong the taxpayer foots the bill. Obviously, this is a less than optimal situation from any point of view but the banks’.

How can this problem be solved? The first step is to reduce the likelihood of a large bank failing. To this end, regulation has, among other things, imposed stricter capital requirements in general and introduced surcharges for systemically important banks. But capital can only shield against losses up to a point. A system that entirely prevents the failure of banks is neither possible nor desirable.

The risk of failure is a core feature of any well-functioning market economy. It not only encourages competition, but also leads to a situation in which the best ultimately prevail. This is what Joseph Schumpeter famously called “creative destruction”. Allan Meltzer put an even finer point on it when he said: “Capitalism without failure is like religion without sin. It doesn’t work.” This by no means implies that we actually want banks to fail per se. But the threat of failure is a huge incentive for owners, creditors and other stakeholders to act prudently and with foresight.

To allow even large banks to fail a viable resolution regime needs to be built. Such a regime would allow these banks to fail without disrupting the entire financial system. They would be able to fail in line with market principles and in an orderly and predictable fashion. The ultimate ‘entrepreneurial burden’ would be shifted from the taxpayer to banks – and that is the right thing to do.

Bail-ins are in and bail-outs are out, so to speak. The G20 have agreed to a proposal on capital structure requirements for global systemically important banks or G-SIBs for short. In particular, these banks will need to ensure a minimum amount of total loss-absorbing capacity, or TLAC for short. This requirement may be as high as 20 percent of risk weighted assets and must be at least 6 percent of unweighted assets, which is twice the Basel III leverage ratio.

Many people blame untamed market forces for the financial crisis of 2008. Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank (2015) argued that it was, in fact, not too much market but too little that contributed to the near-collapse of the financial system. A core characteristic of any well-functioning market economy was absent from the financial sector, namely the threat of failure. Large banks operated with implicit government support that distorted their incentives for prudent behaviour and eventually cost taxpayers billions of euros.

Reference

Dr Andreas Dombret: “Banks – allowing them to fail,” Statement at the Euromoney Conference on Germany, Berlin, 29 April 2015.

Economy, Strategy

Peer-to-Peer Lending Disrupting the Banking Model


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Banks have historically handled most consumer and small business lending because they have the resources to assess a borrower’s creditworthiness, and the regulatory approval to fund loans. However, this model has some key inefficiencies — interest rates are not individualised, the costs of underwriting loans are high, loan decisions can take months, and small & micro enterprises in particular have generally been shut out of the process.

This has left room for the growth of digital lending marketplaces — dubbed peer-to-peer (P2P) lenders — that leverage the internet to give both borrowers and investors a better deal. They use complex algorithms to match borrowers with investors according to each party’s specifications.

P2P lending was the most common form of financing and members of close-knit communities helped each other by lending to those who needed the funds. With the arrival of the internet, the community has now expanded beyond political and geographical boundaries. P2P lending is a form of financing that seems to have begun expanding in a big way 10 years or so ago and is fast catching on as the favoured form of lending and borrowing. In 2009, the US-based nonprofit Zidisha became the first P2P lending platform to link lenders and borrowers directly across international borders without local intermediaries and institute borrower risk analysis in the absence of digital records of financial history.

Since these kind of loans are not just eliminating the need for banks as intermediaries but are also offering a range of positives that banks cannot. More people turned to P2P companies for lending and borrowing following the financial crisis of late 2000-s because banks refused to increase their loan portfolios.

bii-how peer to peer lending works

Among the best positives is the lowered processing costs and consequently lower interest rates that P2P loan portals offer thanks to their automated services. Lenders can also reach a wide customer base that banks do not lend to such as low-income groups with a possibly less than perfect credit score. Borrowers that only need small loans for emergency expenses or to cover salary shortfalls.

The method is not without its disadvantages as the lender has very little assurance that the borrower, who traditional financial intermediaries may have rejected due to a high likelihood of defaults, will repay their loan. Furthermore, depending on the lending system employed, in order to compensate lenders for the risk that they are taking, the amount of interest charged for peer to peer loans may be higher than traditional prime loans.

P2P financing has indeed revolutionised the concept of funding and more people across the globe in need of short-term funds at economical rates can get them easily. Further, lenders with funds to spare now have an alternate viable channel for investing with a huge customer base. The spread of online lending marketplaces is increasing.

Hat Tip: Business Insider

Celebration, Family

Mother’s Day


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Mother’s Day is a modern celebration honoring one’s own mother, as well as motherhood, maternal bonds, and the influence of mothers in society. It was founded for mourning women to remember fallen soldiers and work for peace.

It all started in the 1850s, when West Virginia women’s organizer Ann Reeves Jarvis—Anna’s mother—held Mother’s Day work clubs to improve sanitary conditions and try to lower infant mortality by fighting disease and curbing milk contamination, according to historian Katharine Antolini of West Virginia Wesleyan College. The groups also tended wounded soldiers from both sides during the U.S. Civil War from 1861 to 1865.

Anna Jarvis never had children of her own, but the 1905 death of her own mother inspired her to organize the first Mother’s Day observances in 1908. On 10 May of that year, families gathered at events in Jarvis’s hometown of Grafton, West Virginia—at a church now renamed the International Mother’s Day Shrine—as well as in Philadelphia, where Jarvis lived at the time, and in several other cities.

Largely through Jarvis’s efforts, Mother’s Day came to be observed in a growing number of cities and states until U.S. President Woodrow Wilson officially set aside the second Sunday in May in 1914 for the holiday.

The holiday Anna Jarvis launched has spread around much of the world, though it’s celebrated with varying enthusiasm, in various ways, and on various days—though more often than not on the second Sunday in May. In much of the Arab world, Mother’s Day is on March 21, which happens to loosely coincide with the start of spring. The modern Mother’s Day has been assimilated into Indian culture, and it is celebrated every year on the second Sunday of May.

I was busy in the office when Jaya called to inform me that Babai had sent her flowers and chocolate on Mother’s Day. She was very happy and she was damn surprised as Babai kept it secret from her although he confided it with me. We wanted to give her a pleasant surprise.

As I hung up the phone, I was thinking of my mother. My thoughts for her could best be said in the words of Adriana Trigiani, Big Stone Gap:

“No one worries about you like your mother, and when she is gone, the world seems unsafe, things that happen unwieldy. You cannot turn to her anymore, and it changes your life forever. There is no one on earth who knew you from the day you were born; who knew why you cried, or when you’d had enough food; who knew exactly what to say when you were hurting; and who encouraged you to grow a good heart. When that layer goes, whatever is left of your childhood goes with her.”

Happy Mother’s Day to all the mothers of the world. They are truly divine.

Reference:

Brian Handwerk: “Mother’s Day Turns 100: Its Surprisingly Dark History”, National Geographic, 09 May 2014.

Random

Goodbye Mom!


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I read this story sent to me via WhatsApp today and just wanted to share it with everyone.

A young man shopping in a supermarket noticed a little old lady following him around. If he stopped, she stopped. Furthermore she kept staring at him.

She finally overtook him at the checkout, and she turned to him and said, “I hope I haven’t made you feel ill at ease; it’s just that you look so much like my late son.”

He answered, “That’s okay.”

The old lady said: ”I know it’s silly, but if you’d call out ‘Good bye, Mom’ as I leave the store, it would make me feel so happy.”

She then went through the checkout, and as she was on her way out of the store, the man called out, “Goodbye, Mom!” The little old lady waved and smiled back at him.

Pleased that he had brought a little sunshine into someone’s day, he went to pay for his groceries.

“That comes to $1,211.85,” said the clerk.

“How come so much? I only bought 5 items.”

The clerk replied, “Yeah, but your Mother said that you’d be paying for her things, too.”

Family, Food & Drink, Leisure

Dim sum, Hummus & Falafel


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It was 30 March, Jaya’s stitches on her right wrist were removed. Things were looking okay. Her abdomen stitches would be removed next day. It was getting into evening, Jaya was in no mood to return to the hotel so early. I was a bit hesitant whether she would be able to roam around as she was recovering from her major operation two weeks ago.

A woman is always a woman. She wanted to go to a mall! We decided to go to the Quest Mall near Park Circus, Kolkata. It’s a bright, new mall. I also like walking around here. We were feeling a bit hungry as we left after having breakfast in the morning.

But Jaya wanted to have tea first. So, we went into a Chinese restaurant — Yuatcha and had nice hot tea with dim sums.

Dim sum is a style of Cantonese food. It is inextricably linked with yum cha, or the act of drinking tea – so much so that even now the two phrases are used interchangeably. The unique culinary tradition began thousands of years ago. Those who travelled along the ancient Silk Road through China would often need a place to rest before continuing on their journey. In response to the increasing amount of people passing through, tea houses opened up along the roadside of southern China. It was later discovered that tea aids digestion, so tea-house owners began offering bite-sized snacks as an accompaniment, and thus yum cha was born.

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It started raining outside. It was, in fact, raining heavily. We couldn’t go out. We then walked into the food court for some snacks as we were waiting for the rainfall to stop. We found a Lebanese food stall. We ordered for hummus and falafel.

Hummus is a Levantine food dip or spread made from cooked, mashed chickpeas blended with tahini (a paste from grounded, hulled sesame seeds), olive oil, lemon juice, salt and garlic.

Having #falafel and #hummus with @jagrataroychoudhury

A photo posted by iroychoudhury (@iroychoudhury) on

Falafel is a deep-fried ball or patty made from ground chickpeas, fava beans, or both. Falafel is a common dish eaten throughout the Arab world. The fritters are now found around the world and as a form of street food, too.

We walked out of the gate and found the rain is over. We took the cab and returned to our hotel.

Art

Bollywood Flavour in Diplomacy: Lebe Jetzt


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German Ambassador to India Michael Steiner paid tribute to the soft power of Bollywood by making his acting debut in a video on Shah Rukh Khan, Preity Zinta and Saif Ali Khan-starrer 2003 romantic drama “Kal Ho Naa Ho”. The lip syncing of Ambassador Steiner is perfect. Awesome performance!

The German Embassy on their YouTube page says:

“Traditional diplomacy was about government-to-government relations. Modern diplomacy is more about people-to-people relations. And culture is central here.

This is why Michael Steiner, German Ambassador to India, and Salman Khurshid, former Foreign Minister of India, without taking themselves too seriously, plunged into uncharted waters. Together with Eliese Steiner and under the direction of Sumit Osmand Shaw, they pay homage to the Indian film by reenacting one of its most famous music videos – thus connecting people across borders.

The original video from 2003 – featuring Preity Zinta, Saif Ali Khan and the “King of Bollywood” Shah Rukh Khan – was filmed in the USA. This remake, instead, has been shot in India. It is an Indo-German tribute to Bollywood movies, which have a huge fan base not only in India, but also in Germany.”

“Bollywood is a cultural institution. This is the one instrument to connect to the world and it is a very good instrument. Me and my wife are Bollywood addicts. She has seen more than 150 Bollywood films… we have seen them together,” the German ambassador said.

The title says “LEBE JETZT” because, in German, it means exactly what the wonderful song “KAL HO NAA HO” asks us to do: Live right now to the fullest! “LEBE JETZT” adds a new flavour to Indo-German diplomacy. It also shows the popularity and spread of Bollywood.

Truly, connecting! :-)

Celebration, Family, Friends

My Birthday 2015


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It has been 6 weeks now that I underwent twin surgeries. I can’t thank you all enough for your prayers. It’s comforting to have so many friends praying for me.

Today’s my birthday. Since last midnight, I am getting birthday wishes from my family, friends and relatives. It’s truly comforting to get so many good wishes, I feel loved.

Among the early wishes, I received a call from my son and husband. Jeet Whatsapp’ed me my photo of cutting a cake with “Happy Birthday” message. It’s the cake that Jeet brought the evening before he left for Baghdad for celebrating my birthday in advance. I was looking so sick! Yes, I just had my stitches removed then. I am missing you Jeet and Babai very much.

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Jeet sent me flowers and cake today through Ferns N Petals. I always feel that you’re with me. I love you Jeet.

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In the evening, my friends were with me and again I cut another cake. I enjoyed the day celebrating my birthday.

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But inside my heart, I was feeling sad as I was missing my son, Babai and my husband, Jeet.

Activism, Opinion

#SaveTheInternet


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The Internet has become so much a part of our lives that it is easy to imagine that it will always remain the free and open medium as it is now. We’d like to believe it will remain a place where we can always access any lawful content we want, and where the service providers delivering that content can’t play favorites because they want to charge more money for faster delivery. Network neutrality should be maintained.

Net neutrality means that Internet service providers should provide us with open networks — and should not block or discriminate against any applications or content that ride over those networks. It prohibits the owner of a network, that holds itself out to all-comers, from discriminating against information by halting, slowing, or otherwise tampering with the transfer of any data (except for legitimate network management purposes such as easing congestion or blocking spam).

Why would the telecom companies want to interfere with Internet data? Answer: Profit and other corporate interests. Companies might also interfere with speech that makes them look bad, block applications that compete with their own, or increase their profit by forcing developers to pay more to avoid having their data blocked or slowed down. I am worried. On one fine morning, I may not be able to access my blog due to very slow speed of internet for accessing my blog!

New technologies now allow telecom companies to scrutinize every piece of information we send or receive online – websites, email, videos, Internet phone calls, or data generated by games or social networks. And they can program the computers that route that information to interfere with the data flow by slowing down or blocking traffic and communicators that they don’t like and speeding up traffic they do like or that pays them extra for the privilege. Here’s a nice article on Medianama countering every argument of Airtel against net neutrality.

Save the internet! Yesterday, I joined others by sending an email to the Telecom Regulatory Authority of India (TRAI) through the website savetheinternet.in responding to the regulator’s call for public consultation. Times of India reported that over 27,000 emails have been sent through this website in last 24 hours. An online petition though change.org has nearly 150,000 petitioning the Union minister and TRAI to act against violation of net neutrality.

Internet should be treated as an essential utility, like water. Without water, we die. Without access to the internet, our access to knowledge dies. We need both to survive and thrive. The Internet must remain a forum for innovation and free expression. Open, affordable, fast and universal communications networks are essential to our individual, social, intellectual, economic and political futures.

Economy, Weird

The Negative Rate Mortgage Is Now A Reality


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With negative interest rate policy (NIRP) raging in the eurozone and over €1.9 trillion in European government bonds trading with negative yields, many were wondering whether this generosity will spill over to other debtors.

Following consecutive rate cuts during this year by the Danish Central Bank, local Danish banks — Nordea Credit, Realkredit Danmark — are now offering a mortgage with a negative interest rate! Negative interest rates aren’t a new phenomenon in Europe, but they’ve been limited to inter-bank borrowing. FT reported Ms Christiansen received a negative interest rate for her three-year loan, meaning the lender — Realkredit Danmark, a part of Danske Bank — is paying for her to borrow money. The interest rate of minus 0.0172 per cent — which equates to her receiving about DKr 7 each month from the bank — is just one sign of the “Through The Looking Glass” effects of extreme central banking measures in Scandinavia.

The Scandinavian central banks are going pretty far in NIRP. Sweden’s Riksbank became the first central bank in the world to take its main policy rate — the so-called repo rate — into negative territory. Denmark’s Nationalbanken in turn cut its deposit rate — the amount it pays or in this case charges banks for placing money with it — four times at the start of this year to a world record low of minus 0.75 percent.

On April 8th, Switzerland became the first country to sell 10-year bonds with a negative yield as quantitative easing and deflation fears pushed up bond prices.  Until Wednesday, no country had ever sold 10-year debt that gives investors a yield of below 10 percent. Sold at a yield of minus 0.055 percent, investors bought 232.51 million Swiss francs of debt, maturing in 2025, at a price that could mean they end up paying Switzerland’s government to hold their money. The Swiss deposit rate is set at minus three-fourth of a percent currently so the new Swiss 10-years are at least theoretically more attractive than that. Swiss National Bank (SNB) also held its target range for the three-month London interbank offered rate (Libor) at minus 1.25 percent to minus 0.25 percent. SNB uses Libor as a reference for steering its money-market rates, which influence rates on bank lending and mortgages.

There is concern for what happens should negative rates persist longer. The biggest immediate concern is over whether low rates will fuel housing bubbles. Fears that negative rates could lead to widespread hoarding of cash or banks charging all customers for current accounts have proven wide of the mark. Investors can hold physical cash as an alternative. But it seems that yields will have to be much more negative before they do that. In part, this is because of the nature of modern money; few people want to hold great piles of cash. It is neither convenient nor secure. Most modern money is electronic and that is subject to negative rates. Furthermore, many investors (pension funds, insurance companies, commercial banks, central banks) are forced, or at least accustomed, to holding government bonds for regulatory or accounting purposes; they are indifferent to price or yield.

A situation has now emerged where savers who pay the bank to hold their cash courtesy of negative deposit rates, are directly funding the negative interest rate paid to those who wish to take out debt. As per Duncan Kerr in euromoney, it may only be a matter of time before credit default swaps trade through zero too. At its simplest, mean one institution paying another institution for the privilege of insuring it against a bond default. It’s a seemingly crazy situation, but in a credit market distorted by quantitative easing and negative rates, anything may be possible.

According to Zero Hedge, that all this will end in blood and a lot of tears is clear to anyone but the most tenured economists, however in the meantime, we can’t wait to take advantage of the humorous opportunities that Europe (and soon Japan and the US) will provide in the coming months, as spending profligacy will be directly subsidized and funded by the insolvent monetary system, while responsible behavior and well-paid labor will be punished, first with negative rates and soon thereafter: with threats, both theoretical and practical, of bodily harm.