Saturday, February 13, 2010

Global Policies Take A Quantum Leap

• Paradigm shift in the government and bank policies around the world :

In the wake of the economic crisis, regulators and reformers around the world are eyeing for another renaissance. What was really worth considering was that the banks world-around, especially the ones in U.S.A, went under the meltdown despite years of boom. Economists world over consider it as an utter failure to retain a “decent share of their profits”. Even the big ones couldn’t avoid being in the red. This is what initiated recession and this is what the economists are trying to reform through “countercyclical buffering “. Just to provide a brief overview from around the world, here’s what you need to know:

1.) Shirking off the ‘too-big-to-fail’ :

Reformers have at last sought to change their beliefs in the organisations that are treated as ‘Too big to fail’. The ‘Baseline Scenario’ reports the notion to be rapidly gaining ground in the U.S.A. economists believe that no organisation/bank should be given the status ‘too big to fail’. In other words, even the big ones won’t be receiving government helps and bail-outs and would meet the same fate as the smaller ones. Simply put, they would be allowed to fail too. Reformers think such organisations are dangerous for the financial status of the country by accumulating the major portions of the wealth.

2.) Glass-Steagall revisited :

Just as the great depression saw the establishment of the FDIC (Federal Deposit Insurance Corporation) and the banking act of 1933 (better known as the Glass-Steagall act); Obama administration seeks to bring in the proposed ‘Volcker Rule’ very soon. Though it differs with the Glass-Steagall in many prospects, the underlying idea is the same, i.e., separating the commercial banks from the investment ones. Volcker-Rule states that:

1.) No commercial banks would be allowed to dwell into ‘proprietary trading’ or owning/sponsoring hedge funds.

2.) The overall size of the banks would be capped to about less than 10% of the U.S government insured deposits (the current figure), although how much it’d be has not been decided yet.

Though this rule makes no bindings on the commercial banks regarding ‘underwriting’, which the Glass-Steagull actually did, the theme remains the same.

3.) C.R.R rises by 75 basis points in India:

Among the major changes in Indian banking policies was the R.B.I’s stance toward the Cash-Reserve-Ratio. Each bank is required to deposit a portion of its asset with the R.B.I (reserve bank of India). The C.R.R stood at 5 per-cents but is set to rise by 75 basis points from February, 13, 2010 in two tranches. And I’m not sure if it’s for the same reason or not but the S.B.I’s lending rates are also due to rise. Looks like R.B.I’s attempt to cap India’s banks will have the citizens paying for it.

4.) Greece debt crisis:

But at least the condition in India is much better than that in Greece which is ailing under rigorous debt crisis. The government, on its attempt to jettison its deficits, has cast severe blows on its own people. Numerous schools have been shut down, flights have been grounded and hospitals are running on the emergency-only basis. Although the European Union will take this agenda as its foremost point of consideration in the meetings that follow, but for now, it seems that Greece can be forced to discontinue the use of Euro by the other nations.

The good thing for the world, though, is that at last the U.S.A is taking a tougher stance toward its big-banks. Although such measures can be ground-breaking, they’ll have to get through the opposition-protests and austere lobbying by the organisations and banks. But the conditions do seem to be turning around pro tem.

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