Banks – General Updates

“Money Creation In The Modern Economy” - By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.
View full article here  Bank of England Quarterly Newsletter Q1

Introductory remarks:

  • This article explains how the majority of money in the modern economy is created by commercial banks making loans.
  • Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
  • The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.

From the Financial Times:

* Banks have shelled out $100 billion in U.S. legal settlements since the financial crisis, according to Financial Times research, reflecting a substantial shift in political attitudes towards the financial sector.

* Santander UK is to be slapped with a 12.5 million-pound fine by Britain’s Financial Conduct Authority on Wednesday for providing unsuitable investment advice to customers in its branches.

BBC News – Former UBS and Citigroup trader charged over Libor:

Former UBS and Citigroup trader Tom Hayes has been charged by the Serious Fraud Office (SFO) in connection with its investigation into the manipulation of Libor.

Mr Hayes, 33, has been charged with eight counts of conspiracy to defraud, and will appear before Westminster Magistrates’ Court on Thursday.

These are the SFO’s first criminal charges related to Libor.  http://www.bbc.com/news/world-22952843

The Volker Rule:  

To: Chief Executive Officers of All National Banks and Federal Savings Associations, Federal Branches and Agencies, Department and Division Heads, All Examining Personnel, and Other Interested Parties.

The final regulations

  • prohibit banks from engaging in short-term proprietary trading of certain securities, derivatives commodity futures, and options on these instruments for their own accounts.
  • impose limits on banks’ investments in, and other relationships with, hedge funds and private equity funds.
  • provide exemptions for certain activities, including market making-related activities, underwriting, risk-mitigating hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds and private equity funds.
  • clarify that certain activities are not prohibited, including acting as agent, broker, or custodian.
  • scale compliance requirements based on the size of the bank and the scope of the activities. Larger banks are required to establish detailed compliance programs and their chief executive officers must attest to the OCC that the bank’s programs are reasonably designed to achieve compliance with the final regulations. Smaller banks engaged in modest activities are subject to a simplified compliance program.

 Commentary:  If you were wondering why the Big Banks were fighting so hard against The Volcker Rule over the past 5 years you are about to find out. As of Tuesday, April 1, 2014, the rule goes into effect.

Nodes of term Fractional Reserve Banking: Zerohedge.com