From regulation to supervision – the trajectory of MiFID II
The European Union’s ambitious attempt to re-regulate the financial industry (MiFID II) took effect this year. Companies are struggling to meet its complex disclosure requirements, which can only be met by powerful and costly IT solutions. Early experience suggests MiFID II is so unworkable that it may soon have to be replaced; but the bigger worry is that it may be the precursor of a real-time, global surveillance apparatus.
Opinion: Ready for the next recession?
Economists enjoy delivering bad news. The current favorite being shared by academics and financial experts is that the world is headed for a recession, in 2020 or 2021 at the latest. But we regard this as unlikely, unless there is a major political accident – such as a trade war or turmoil in China. While a slowdown is always possible, especially in Western Europe, that does not make a recession.
Can India bank on its banks?
As the ratio of nonperforming assets in India’s banking sector rises, there have been loud calls for reform. The condition of loan portfolios at state-controlled banks is now so parlous that it is choking off the availability of new credit and forcing the government into ever more ambitious recapitalization schemes. But for all the smoke and noise, substantive change has been elusive.
Is Brexit inevitable?
Signs are accumulating that the preliminary divorce agreement between the United Kingdom and the European Union is starting to unravel, and that a year from now, on March 29/30, 2019, we could witness a “hard Brexit” with no transition arrangements and chaos in areas hitherto regulated by the EU. The damage to both sides’ economies would be substantial, and time for softening the blow is running out.
Irrational tax and regulatory systems
The true story of the Paradise Papers is less about shady business deals than about the byzantine regulatory and tax structures of developed countries. It is a lesson that politicians like French President Emmanuel Macron are studiously trying to ignore.
Italy after the referendum
Italy's political establishment is hanging tough after the failed constitutional referendum. But buying time and tinkering with the election law will be of no avail unless the economy improves. Prime Minister Paolo Gentiloni’s caretaker government appears to lack the political clout to cut spending and fix the banks. That will only strengthen the appeal of Beppe Grillo’s Five Star Movement.
The MPS bailout and the future of EU banking
Italian authorities failed to save the historic bank using the European Union’s bail-in rules, so they applied to bail it out. The EU allowed the move, even though it was clear there was no real systemic risk. The turnaround stems from protectionist and anti-competitive attitudes. These will prevail in the near future, to the detriment of taxpayers.
Central banks and corporate bonds
The latest scheme to have the European Central Bank buy corporate bonds is unlikely to turn quantitative easing into an effective stimulus policy. But there may other motivations at work. As a camouflaged bailout for big European banks and a bureaucratic carrot to slow corporate flight, expanded debt purchases make sense to policy makers in Brussels and Frankfurt.
Market economies, regulation and crony capitalism
The global economic crisis arose in the world's most highly regulated sector – the financial industry. That is certainly no coincidence. When government intervention and easy money meet big banks, the result is cronyism – the furthest thing from genuinely free markets.