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Tracking the consumer evolution of financial services

Archive for the ‘US’ Category

Review of the US economy – Federal Reserve Bank of San Francisco

The shifts that must be made before recovery is accepted are nicely summarised here including the required reduction in debt.  Interestingly this comes after a few introductory cheerleading paragraphs suggesting recovery is already here.

At the Federal Reserve Bank of San Francisco Community Leaders Luncheon, San Francisco, California

As I have been emphasizing, the transition to full employment and the emergence of this new configuration of spending and production, and borrowing and saving, will take time. This rebalancing involves repairs to balance sheets, the movement of capital and labor across sectors of the economy, and shifts in the global pattern of production and consumption–adjustments that are likely to be gradual under any conditions. Moreover, the re-equilibration may be slower than might otherwise be the case because tight credit will limit the ability of some households and firms to make the necessary adjustments.

Then some additional remarks about the economy in general.

Government policies will be essential to supporting the smooth transition to more-sustainable economic growth with greater investment and exports. We must ensure that changes in taxation and regulation do not blunt incentives for business investment. In addition, although fiscal policy has provided important support for the economic recovery, it will need to be put on a more sustainable path in the medium term. Failure to do so risks a market reaction that could increase longer-term interest rates; economic growth would be hindered if government borrowing boosts the cost of capital and diverts resources away from private investment.

Reducing the deficit and avoiding a continuing buildup in government debt relative to income will be essential for bringing national production and spending into better balance. That balance, in turn, is necessary so that we are no longer so reliant on borrowing from other nations. Heavy dependence on foreign borrowing by the United States is not a solid foundation for long-term economic growth either here or in those countries extending us credit. The actions of U.S. authorities and private parties to bring about a better balance of saving and investment must be matched by action overseas in chronic surplus countries. While we reduce demand relative to our productive potential, the surplus countries must increase their domestic demand if the global economy is to thrive.

Finally, as has been so painfully demonstrated over the past few years, sustained growth requires a financial system that is much more resilient and thus better equipped to continue to supply funds to creditworthy borrowers when the unexpected happens. To this end, banks and other lenders must hold capital and liquidity to cover more of the risks they are taking, and they must have the capability to know what those risks are and to manage them effectively. Critically, the financial regulatory structure needs to be modernized to bring oversight and market discipline to bear much more effectively on our rapidly evolving financial system and to give regulators more tools to deal with problems as they arise. At the Federal Reserve, we are improving our supervision and regulation to incorporate a broader view of emerging risks in the financial system and to become more effective at translating identified risks to supervisory oversight and, if required, remedial actions by the banks.

Written by Colin Henderson

April 8, 2010 at 20:50

Posted in economy, US

Signs of trouble in the western economies remain for banks

Whether its Greece, Portugal and the EU financial issues, or the ongoing housing saga in the US, we are clearly not yet out of the woods relative to the 2008 banking crisis.

U.S. Plans to Expand Aid to Troubled Homeowners | NYT

The Obama administration will announce on Friday a broad new initiative to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

Written by Colin Henderson

March 25, 2010 at 20:43

Posted in economy, Europe, US

The debt glut and risk to banks

The survivability of banks generally is todays topic.  The Greek situation has one possible outcome of contagion across numerous aspects with potential for another economic crisis, despite the cries from many that the crisis is over.

This week Brad de Long took issue with Niall Fergusons recent piece (A Greek crisis is coming to America)  wherein Niall highlighted the international country debt crisis was not just Greece, Portugal and Spain, but included the US.  He is one of many US commentators who are becoming increasingly shrill against Niall and others even raising his personal life style as a means to discredit him.   The issue is one to be determined by facts not shrillness.

Fact 1:

FDIC problem banks are an increasing problem.  In May 2008, I noted the existence of the FDIC Problem Bank list.  At that time there were 90 banks representing $ 26 Bn in assets at risk.

Today there are 552 banks, representing $ 346 Bn.

Fact 2:

Government debt is a problem.  The Greek situation is one that has no good outcome.  John Mauldin summarises the situation in his weekly newsletter.

The recent credit crisis was over a few trillion in bad, mostly US, mortgage debts, with most of that at US banks. Greek debt is $350 billion, with about $270 billion of that spread among just three European countries and their banks. Make no mistake, a Greek default is another potential credit crisis in the making. As noted above, it is not just the write-down of Greek debt; it is the mark-to-market of other sovereign debt.

That would bankrupt the bulk of the European banking system, which is why it is unlikely to be allowed to happen.

He goes on to note that there might be ways to reduce valuations of debt at a slower pace to allow absorption into the banks’ balance sheets, but that partly assumes the Greek situation remains alone.  What of the US debt, which despite de Longs protestation to the contrary is at 100% of GDP by 2012, and eerily similar to the Club Med countries position.  The contrary argument says it matters less because the debt is denominated in US Dollars.  However if money has to be printed to repay the interest, I see no relevance to the currency denomination.  Directly or indirectly it always comes back to exchange rates, interest rates, and repayment, and those are factors that impact the general population directly through inflation/ deflation, unemployment, and affordability.

Debt and repayment of that debt remains one of the single largest global risks and those that try to paint a picture that the US is immune are wrong.

Earlier this week Moody’s reported a downgrade to Bank of America and CitiBank with the peculiar note that the potential availability of government bailout of those institutions is reduced.  The implication of that statement is that government bailout is factored into the rating of US banks.  This is insanity.  the risk of a bank to fail should not be mitigated by inferred support from Government.  Financial risk is financial risk and can only be reduced by explicit guarantees.  Clearly the rating agencies have learned nothing since 2008.

Banks will continue to be distracted from customer based activities by threats to their financial survival.


Europe cannot afford to rescue Greece |

Participation in Emu brings huge advantages. The benefits of joining a stable economic area are greatest for countries that were unable to deliver such conditions before. Thanks to the euro, Greece has enjoyed long-term interest rates at a record low. But instead of delivering on its commitment at the time of entry to reduce public debt levels, the country has wasted potential savings in a spending frenzy. The crisis with which it is now confronted is not the result of an “external shock” such as an earthquake, but the result of bad policies pursued over many years. Bailing out Greece would reward such behaviour and create moral hazard of a dimension hardly seen before

Written by Colin Henderson

February 14, 2010 at 16:20

Posted in US

While twentysomethings – entertainment .. social networking but thirtysomethings – manage finances online | Finextra

I am usually suspicious of surveys, but there appears to be a ring of reality to this one.  There is a link to the survey questions, which I found intriguing.

Youth and tech savvy not always related – Wells Fargo survey

Stephanie Smith, SVP, online sales and marketing, Wells Fargo, says: "There’s so much in the news about social networking but it’s interesting that just 10 percent of respondents said they make social networking a high priority, compared to 65% of those who make their finances a high priority."

Technorati Tags: ,,

Written by Colin Henderson

January 24, 2010 at 23:35

Posted in online+banking, US

Non Cash Growth as a barometer of Payment Innovation

CapGemini have come out with their World Payments Report – 2009 [pdf 60 pages]. Lots of statistics, but the one that leapt out at me is this.


Japan stands out as a growth leader, despite being a mature economy.   Certainly their growth potential is large given the traditional consumer cash economy, but I have to look at the North American lowly 5% and wonder that lack of innovation in payments is not a driver. Certainly there remains lots of cash transactions to convert to payments but nominal innovation in the works to migrate to electronic.  The report notes that cash in circulation continues to growth in the Eurozone.

There is an interesting section reviewing the payments innovation in Asia, and a chapter devoted to summarising the state of SEPA.



Written by Colin Henderson

September 10, 2009 at 09:06

Posted in Payments, SEPA, US

Tagged with , , ,

Abandoned Schools in Detroit | no sign of recovery here

I have mentioned more than a few times my belief that recovery is not a return to 2007. The new normal will create damatic shifts and new paradigms for bank planning.

Detroit gets picked on a lot …. but these pictures are not pictures of a temoorary set-back. Prepare to be disturbed. This might go some way to explain why houses in Detroit can be purchased for as little as $5K.

Abandoned Schools in Detroit

Researched by Nobuyo Henderson

Written by Colin Henderson

August 14, 2009 at 22:33

Posted in US

Tagged with , , ,

US Bank failure tracker | 1934 – 2009

Interesting graph.  Look at 1980/82 and compare to 2009.  [ht Calculated Risk]


Written by Colin Henderson

July 4, 2009 at 23:57

Posted in US

China and America economic future – Ferguson/ Fallows debate

A summary in NYT of the fascinating Ferguson/ Fallows debate at Aspen on the economic relationship between China and US.

Ferguson: US and China are divorcing economically.  China will focus on internal consumption, not exports.  “Depreciation (of US $) is inevitable and the Chinese are working to end the dollar’s role as the world’s reserve currency.”

Fallows: “…  doesn’t know what the future will hold, but he believes that Chinese officials still see the dollar as their least risky investment. Domestically, China will not turn democratic, but individual liberties will expand. He agreed that China and the U.S. will dominate the 21st century, but he painted the picture of a more benign cooperation.”

Chinese Fireworks Display | NYT

I came to the debate agreeing more with Fallows and left the same way, but I was impressed by how powerfully Ferguson made his case. And I was struck by their agreement about what to do. This conversation, like many conversations these days, gets back to America’s debt. Until the U.S. gets its fiscal house in order, relations with countries like China will be fundamentally insecure.

Written by Colin Henderson

July 4, 2009 at 22:48

Posted in economy, US

Tagged with , , , ,

Morgan Stanley and MUFG in joint push

Morgan Stanley hooks up with one of the largest Japanese banks to compete with Citi and JP Morgan.

Morgan Stanley and MUFG in joint push | FT

Mitsubishi UFJ Financial Group is set to merge its securities subsidiary with Morgan Stanley’s Japanese securities operations, to create one of the top three brokerages in Japan.

The Japanese bank and Morgan Stanley have been in talks since MUFG invested $9bn last year into the then-struggling US broker, for a 21 per cent stake.

Researched by Nobyuo Henderson

Written by Colin Henderson

June 30, 2009 at 23:37

Posted in US

Tagged with ,

Consumer mindsets in North America have shifted permanently with regard to finances

After my last post, I thought it better to follow up with some facts to support my contention that this economic recovery is L shaped in Canada and US.  This is not meant to be an economic projection, and I leave that to the professional economists.  However in terms of planning, banks ought to consider the high probability of a scenario where the reduction in economic activity will level off but hardly see growth in the near future.  This will be driven by consumer confidence and frankly their financial circumstances.

If we go back to the root cause of the recession it remains this;   a dramatic drop in consumer asset values resulting in leverage that is too high.  Layer in the concern about job security, and the real increase in unemployment, we must look carefully at ability to manage the debt based on current income, and the effect of that on the business of banking.

Here is the ratio of debt to disposeable income in Canada and US at end of 2008. [source: CGA Association Canada & Federal Reserve Bank of San Francisco]

Canada              US

%                                  136.5%             130%

The first surprise is that Canadians are more highly levered than Americans.  The CGA report makes these points amongst others:

… prospects of improving households’ financial situation in the near future are low. A balanced approach to spending, saving and paying down debt may be a desirable feature of households financial behaviour in the near future.

Hardly earth shattering stuff but the consequences remain that strategies need to account for this new consumer mindset in North America for the next few years.

Written by Colin Henderson

June 22, 2009 at 14:47

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