The Federal Reserve Bank of New York has published new research suggesting “the largest US banks have benefited from a significant funding advantage (alt) over their smaller peers;” systemically important banks (“too big to fail”) “enjoyed an extra $60m-$80m of cost savings per average new bond sale (or about 31 bps total) over their smaller competitors until 2009.” Furthermore, “Fed researchers cautioned that regulators would have to consider trade-offs when breaking up systemically-large banks. [For example,] capping banks’ size at 4 per cent of GDP would raise the industry’s expenses by as much as $4bn per quarter…Instead, the Fed researchers suggested that requiring big banks to issue longer-term and ‘bail-inable’ debt that can be converted into equity in times of stress, might be preferable to dismantling large lenders.” Meanwhile, “Wall Street banks and their foreign rivals have paid out $100bn in US legal settlements (alt) since the financial crisis, according to Financial Times research, with more than half of the penalties extracted in the past year.” Furthermore, near-future litigation costs for big banks are expected to be ~ $151bn, according to the Federal Reserve.
China Could Use More Safety Nets
“Hundreds of depositors have raced to pull their cash (alt) from a small rural bank in eastern China, forcing local officials to take emergency measures to calm the panic after the bank run began to spread…it has been a localised event, contained to one farming county where lightly regulated credit cooperatives and loan guarantee companies failed this year after mismanaging funds…At its doors, the bank broadcast a recorded message on repeat: ‘Savers’ deposits are protected by law. There is no situation in which we cannot meet cash withdrawal demands.’” Which isn’t totally true. Until, at least, the Chinese government establishes the safety net of deposit insurance. Speaking of safety nets, China will need more if it wants to rebalance the economy successfully: “China’s government is keen to promote consumer spending as a new force in the economy. The only problem: Chinese households hate to consume. Instead, they squirrel away their money for a rainy day — not surprisingly, since pension provision is patchy and, in the absence of a decent insurance system, medical costs weigh heavily on the sick.” Meanwhile, here’s an update on the development of China’s shale-gas industry: “so far fewer than 100 shale-gas wells have been drilled in China, compared with around 40,000 wells in the U.S…’Relative to United States’ shale-gas plays, the [reserves] of the Sichuan and Tarim basins are potentially enormous and, if successful, could rival the Marcellus in terms of absolute scale.’”
“The European Central Bank could buy loans and other assets from banks to help support the euro zone economy, Germany’s Bundesbank said, marking a radical softening of its stance on the contested policy.” The President of the German Bundesbank is only one of several Euro policy makers who appear to be relaxing their opposition towards unconventional monetary policy. This is probably due to three things: 1) people seem to question whether it has much of an impact at all, 2) “more economists are fretting about the risks of getting stuck in a deflationary trap,” and 3) German confidence in their economy is waning.
“The big winners of Facebook’s $2 billion deal to buy Oculus VR, a virtual reality headset maker, include a roster of elite venture capitalists who invested in the company early on. But many who supported Oculus in its early days will walk away empty-handed. Those would be its backers on Kickstarter, the fund-raising platform that Oculus used to raise $2.4 million in September 2012…Their goal was not to receive equity but rather to see the product come to market. The smallest backers got merely a ‘thank you.’” Barry Ritholtz is rather unkind to the sheep scammed by Kickstarter and, by extension, the JOBS Act.
“The I.R.S.’s decision would treat Bitcoin as property subject to capital gains taxes. Long-term capital gains taxes are capped at 20 percent, a more favorable rate than the top rate of 39.6 percent on federal income taxes. Individual traders in the currency markets — the British pound, for example — are expected to treat gains or losses as regular income for tax purposes.”