Aurelia Butler

Bank runs in the digital age are extraordinarily swift. The demise of Silicon Valley Bank and Credit Suisse have demonstrated that. But at heart, bank runs are old-fashioned affairs. With the exception of a few decades of calm after the second world war, such crises have occurred regularly. Most follow a pattern that is centuries old. Speculative booms, large capital inflows or financial liberalisation are common precursors. The proximate cause is often falling asset prices. Depositors’ subsequent flight to safety causes contagion. The consequence is a credit crunch, depressing production and employment. Nearly half of all US business cycle downturns between 1825 and 1914 involved big banking crises. Remedies have been long debated. A banker first floated the idea that the Bank of England should act as a lender of last resort in 1797. At first, the Old Lady — then a private bank with some public responsibilities — did not play ball. Its initial response — later reversed — to the 1825 banking panic was to protect its reserves, ration lending and raise its discount rate. More than one in 10 banks in England and Wales had failed by 1826.That crash prompted legislation allowing banks — then small, poorly capitalised partnerships — to incorporate. But limited liability only became mainstream after the failure of the City of Glasgow Bank in 1878. The gulf between its assets and liabilities punctured the notion that unlimited liability guaranteed the bank. That drama has resonance today, as post-2008 rules intended to make shareholders bear the brunt of any bailout are put to the test. Another early response to bank runs was deposit insurance. This was first introduced in 1829 by the US state of New York. Just over a century later, a federal insurance system was introduced in response to the collapse of more than 9,000 banks in the Great Depression. It has recently — and controversially — been extended to cover all the depositors of Silicon Valley Bank and Signature. The rescue effort sets expectations for future bailouts dangerously high, say critics. That adds to long-running concerns about moral hazard. While intervening in bank runs limits the damage, it dilutes the incentive to guard against financial risks. No wonder many financial regulators pay close attention to history. Their tools and understanding are more sophisticated than in the past. But the underlying dilemma is not much changed. More

The IMF managing director reiterated her view that 2023 would be another challenging year, with global growth slowing to below 3% due to scarring from the pandemic, the war in Ukraine and monetary tightening.Even with a better outlook for 2024, global growth will remain well below its historic average of 3.8% and the overall outlook remained weak, she said at the China Development Forum.The IMF, which has predicted global growth of 2.9% this year, is slated to release new forecasts next month.Georgieva said policymakers in advanced economies had responded decisively to financial stability risks in the wake of bank collapses but even so vigilance was needed.”So, we continue to monitor developments closely and are assessing potential implications for the global economic outlook and global financial stability,” she said, adding that the IMF was paying close attention to the most vulnerable countries, particularly low-income countries with high levels of debt.She also warned that geo-economic fragmentation could split the world into rival economic blocs, resulting in “a dangerous division that would leave everyone poorer and less secure.”Georgieva said China’s strong economic rebound, with projected GDP growth of 5.2% in 2023, offered some hope for the world economy, with China expected to account for around one third of global growth in 2023.The IMF estimates that every 1 percentage point increase in GDP growth in China results in a 0.3 percentage point rise in growth in other Asian economies, she said.She urged policymakers in China to work to raise productivity and rebalance the economy away from investment and towards more durable consumption-driven growth, including through market-oriented reforms to level the playing field between the private sector and state-owned enterprises.Such reforms could lift real GDP by as much as 2.5% by 2027, and by around 18% by 2037, Georgieva said. She said rebalancing China’s economy would also help Beijing reach its climate goals, since moving to consumption-led growth would cool energy demand, reducing emissions and easing energy security pressures.Doing so, she said, could reduce carbon dioxide emissions by 15% over the next 30 years, resulting in a fall in global emissions of 4.5% over the same period. More

“Non-monetary measures to ease inflation could address the problem more effectively”, including those already adopted by fiscal authorities, Diokno said in a statement.The Bangko Sentral ng Pilipinas’ decided on Thursday to continue fighting inflation with a rate increase, although at the slower pace of 25 basis points (bps) to 6.25%.BSP Governor Felipe Medalla has said the central bank’s next policy decision move would depend largely on how consumer prices behave in the coming months.The latest BSP rate increase brought to 425 bps the total tightening it has delivered since May, the full impact of which Diokno said had yet to be absorbed by the economy, considering that monetary policy often works with a long lag. “In my view, the monetary authorities have done enough. And monetary policy is not the only game in town. Besides … monetary policy works with a long lag,” said Diokno, who sits as a member of the seven-man monetary board of the central bank. (This story has been refiled to correct to ‘seven-man’, not ‘seven-month’,  in paragraph 6) More

Ukraine will no longer resort to “dangerous” monetary financing to fund its war against Russia, its central bank governor has said, adding that an “open conflict” with the government over the issue had been resolved.Andriy Pyshnyy, the 48-year-old head of the National Bank of Ukraine, said in an interview with the Financial Times that it had “created huge risks for macro-financial stability” when the bank was forced last year to print billions of hryvnia to plug a budget shortfall.“It was a quick remedy, but very dangerous,” said Pyshnyy, who wears multiple leather and silver wristbands up his tattooed arms, as well as the standard hoodie now worn by Ukrainian officials.The finance ministry had been unwilling to tap domestic bond markets or raise revenues instead. It has since changed course, paving the way for a $15.6bn loan agreed between the IMF and Kyiv last week, which still requires approval of the fund’s executive board.An end to monetary financing, use of domestic bond markets and measures to increase tax revenues have been hard-wired into the IMF deal.Economists feared Ukraine could fall into a hyperinflationary spiral last year because of money-printing to make up for delayed disbursements of financial aid from the EU. Critics said the government should have instead tightened its belt, borrowed from Ukrainian banks and raised taxes and customs duties. Pyshnyy’s predecessor Kyrylo Shevchenko echoed those arguments in an opinion piece in the FT in September, adding to tensions with the government.Pyshnyy, a former banker who lost his hearing at aged 34, replaced Shevchenko in October.On his first day in office he set out to repair relations with the government, meeting finance minister Serhiy Marchenko “until the late hours of the night”. They struck a deal, with the central bank adjusting its bank reserve requirements and the ministry offering lenders more attractive terms.Pyshnyy said the NBU’s aim was to soak up excess liquidity via tougher reserve requirements and gradually return to a floating exchange rate.He said the IMF had made a “revolutionary” policy change by agreeing to lend to Ukraine during a period of exceptional economic uncertainty caused by Russia’s invasion.

The IMF agreement would help to “ensure the coalition of donors commits to providing assistance of about $40bn” this year, he added.Ukraine has a poor record of meeting the IMF’s conditions during a succession of bailouts. But Kyiv built confidence by reaching the goals set by the fund during a four-month “programme monitoring with board involvement” over the winter, Pyshnyy claimed.He said the NBU would next month revise down its forecast for GDP growth in 2023 to just 0.3 per cent, after a 30 per cent fall over the past year, reflecting the impact of Russian missile strikes against Ukraine’s energy infrastructure over the winter.The new forecast does not factor in any additional western aid for reconstruction, which Pyshnyy hopes will act as a “silver bullet” for the economy. More

WASHINGTON (Reuters) -U.S. President Joe Biden’s nominee to head the Federal Aviation Administration (FAA) is withdrawing his nomination after Republican criticism that he was not qualified to serve as the top aviation regulator.Last year, Biden nominated Denver International Airport CEO Phil Washington to serve as FAA administrator. A spokesperson for Washington at the airport did not immediately comment.Transportation Secretary Pete Buttigieg late Saturday confirmed Washington’s withdrawal first reported by Reuters.”The partisan attacks and procedural obstruction he has faced are undeserved, but I respect his decision to withdraw and am grateful for his service,” Buttigieg said on Twitter.The agency has faced numerous safety questions in recent months after a series of close-call safety incidents and the Senate Commerce Committee earlier this week delayed a vote on his nomination citing outstanding questions by some lawmakers. Senator Kyrsten Sinema, a committee Democrat, had not announced whether she would support him and Senator Jon Tester also was still considering how to vote, a spokeswoman said this week.Senator Ted Cruz, ranking Republican on the Senate Commerce Committee, said late Saturday that it has been clear since his nomination that “Mr. Washington lacked the aviation experience necessary to run the FAA … The Biden administration must now quickly name someone to head the FAA who has an extensive aviation background, can earn widespread bipartisan support in the Senate, and will keep the flying public safe.”Cruz and other Republicans had said Washington, who retired from the U.S. Army in July 2000, needed a waiver from rules requiring civilian leadership to head the FAA. The Transportation Department’s general counsel said Washington was fully qualified and did not need a waiver.Cruz noted Washington has only about two years of experience as an airport CEO and criticized Washington’s inability to answer some aviation questions at his confirmation hearing. The White House insisted Washington was fully qualified. Cantwell had said he would shakeup the agency saying “we feel that industry and FAA got too cozy.”A White House official had earlier told Reuters “politics must not hold up confirming an administrator to lead the FAA, and we will move expeditiously to nominate a new candidate for FAA administrator.” The official said “an onslaught of unfounded Republican attacks on Mr Washington’s service and experience irresponsibly delayed this process, threatened unnecessary procedural hurdles on the Senate floor, and ultimately have led him to withdraw his nomination today.”Washington was originally nominated in July but did not get a hearing from the Commerce Committee until March 1.The FAA has had a number of recent safety issues.In January, the FAA halted all departing passenger airline flights for nearly two hours because of a pilot messaging database outage, the first nationwide ground stop of its kind since the Sept. 11, 2001, attacks.On Wednesday, the FAA issued a safety alert to airlines, pilots and others about the “need for continued vigilance and attention to mitigation of safety risks” after a series of high-profile near collisions.Six serious runway incursions have occurred since January that prompted the agency to convene a safety summit last week.Some industry officials think the White House could name acting FAA Administrator Billy Nolen as a new nominee. Nolen, who was named head of the FAA’s aviation safety office, has been the acting FAA administrator since April 2022 and has received backing from many Republicans in Congress.Washington had won support from a wide range of groups, including a number of aviation unions and a group of family members of some killed in a 2019 fatal Boeing (NYSE:BA) 737 MAX crash.The FAA has been without a permanent administrator for almost a year.This was the second major Bide nominee to withdraw in recent weeks. Gigi Sohn, his pick for a key fifth seat on the Federal Communications Commission (FCC), withdrew dealing a setback for Democrats who have been unable to take control of the telecom regulator for more than two years. More

All deliberations are at an early stage and an expansion of the Federal Reserve’s emergency lending program is one of the many considerations by officials to support the failing lender, the report said, citing people with knowledge of the situation.While any changes to the Fed’s liquidity offerings would apply to all eligible users, the adjustments could be designed to ensure that First Republic benefits from the changes, Bloomberg said. Representatives for the U.S. Treasury, Federal Deposit Insurance Corporation (FDIC) and First Republic Bank declined to comment. The Federal Reserve did not immediately respond to a Reuters request for a comment.U.S. banks have sought record amounts of emergency liquidity from the Federal Reserve in the past month after the failures of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY). Earlier this month, U.S. President Joe Biden’s economic team worked with regulators to set up measures to support the banking system, including setting up a new facility to give banks access to emergency funds and making it easier for banks to borrow from the Fed in emergencies. More

Workers in one of China’s busiest export hubs are struggling to get jobs as the global economic outlook weakens and tensions with the US push manufacturers to relocate factories outside China.The county of Kunshan, 50km from Shanghai in China’s Jiangsu province, used to boast wages up to 30 per cent higher than in less-developed interior provinces, thanks to the thousands of contract manufacturers that assembled critical components there. With almost 1mn people, Kunshan has 1,529 export-focused manufacturers from Taiwan alone and is known as China’s richest county.But its companies are cutting back, factory owners and logistics groups said, in response to falling exports, which had driven China’s economic growth through the pandemic. Chinese exports have declined in dollar terms for five straight months since last October as western buyers reduce orders amid high inflation and a gloomy economic outlook.Kunshan’s malaise reflects the challenges faced by China’s export-led economy as the country emerges from three years of pandemic restrictions, and as policymakers struggle to find another growth engine to offset a decline in foreign trade.

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Factory headcounts have shrunk and companies have cut hourly wages by up to a third, according to multiple recruiters, while lucrative sign-on bonuses have been scrapped. Many factories have begun turning down older applicants, as declining orders created a labour oversupply, reversing a pandemic-era trend when factories increased hiring to meet strong demand.The labour market weakness has been exacerbated by Taiwanese manufacturers, the county’s biggest employer, relocating production to other countries to limit their exposure to US-China tensions. The Biden administration has sought to secure supply chains of critical electronics, such as those assembled in Kunshan, on national security grounds, pressing American companies and those of its allies to reshore operations and restrict trade with China.“Kunshan owes its rise to prominence to the influx of Taiwanese manufacturers,” said Dan Wang, chief China economist at Hang Seng Bank China. “These companies have now become a drag on growth.”While official surveys have reported an uptick in economic activity in recent weeks, with manufacturing and exports in local currency terms climbing in the first two months of the year, the recovery has not filtered down to companies and job seekers.Wages at Taiwanese manufacturers in Kunshan have fallen to less than Rmb19 ($2.75) an hour from more than Rmb25 a year ago. Instead of paying signing bonuses of up to Rmb10,000 ($1,450), many factories have begun charging fees to screen applicants.Job openings have also declined as many employers have tightened age limits for unskilled workers. Foxconn Kunshan, the leading Taiwanese Apple contract manufacturer, now requires applicants for entry-level positions to be under 40 years old, compared with 45 a year ago.“We don’t have enough positions for so many job seekers,” said Chen Jian, a recruiter who works with contract manufacturers in Kunshan.

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James Gao, owner of a Kunshan-based logistics group that works with Foxconn and Pegatron, another Taiwanese Apple contract manufacturer, said shipments had dropped by at least a third in the first quarter of 2023 from a year earlier.“Our driver once had trouble finding parking space at the Shanghai port,” said Gao. “Now the parking lot is half empty.”Gao added that some of his Taiwanese factory clients, which mainly serve western consumer electronics brands, had started allocating some orders to facilities in Vietnam and India as geopolitical tensions incentivised them to diversify.“If a Kunshan factory could get a $10bn order from Apple or Dell in the past, now it gets $8bn and the rest goes to Vietnam,” he said.

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As demand for low-margin manufacturing dwindles, Kunshan has begun courting foreign investors with higher technological demands and focusing on local sales to spur growth. The strategy has attracted some companies thanks to Kunshan’s established supply chain and proximity to Shanghai, China’s largest high-end consumer market and hub for tech research and development.Bernd Reitmeier, the founder of Startup Factory, a Kunshan-based business incubator for European manufacturers, forecast membership to grow this year as companies sought to tap the world’s second-largest economy.

“The motivation for our companies to come to China is to localise manufacturing and to sell into the Chinese market . . . As a consequence, they stay in Kunshan,” said Reitmeier. “This is different from Taiwanese companies who will move on.”The inflow probably will not be enough to offset the shortfall from Kunshan’s contractor manufacturers, however. In January, Chen Liyan, Kunshan’s mayor, said the county expected $1.1bn foreign investment this year, a drop from $1.7bn in 2022. Chen also set a growth target for foreign trade of zero for 2023, following a 3 per cent contraction last year.“We need to be more realistic about foreign investment and trade projections” given the shifting economic environment, said a local official who declined to be named. “The days of fast growth are gone for good.”For job seekers, the picture is bleak. Wang Liming, a 40-year-old migrant worker from central Henan province, encountered a shortage in job vacancies and falling wages when he arrived in Kunshan this month.“I thought the end of zero-Covid would make my life easier,” Wang said outside a labour exchange in downtown Kunshan. “That is not the case. I had to take deep pay cuts to stay employed.”Additional reporting by Andy Lin in Hong Kong More