The latest growth data for the UK is somewhat difficult to interpret. It’s positive, but not that positive. The Conservatives say it shows that the economy is moving in the right direction. Labour suggests it is evidence that the Coalition’s policies are not working. With a return to positive growth, the UK has avoided the triple dip recession and here we take a closer look at the economic performance of other key nations.
In the final quarter of 2012, the US economy grew at 0.4%, but in the 3 months to March 2013, economic growth in America picked up to 2.5%. Consumer spending significantly increased, growing at an annualized rate of 3.2%, according to the Commerce Department. This figure helped boost the growth rate of the US economy, as consumer spending accounts for around two thirds of economic activity.
However, the growth figure was lower than expected, in part due to lower government spending. Furthermore, there are suggestions that the positive consumer spending figures are merely a positive blip and spending will fall as the US economy moves through 2013.
If this does prove to be the case in the USA, it will do little to further boost UK economic growth, which was recorded at 0.3% for the first 3 months of 2013. The Chancellor has said that the growth figures are encouraging and are evidence that the government’s policies are working.
Today’s figures are an encouraging sign the economy is healing … Despite a tough economic backdrop, we are making progress. We all know there are no easy answers to problems built up over many years, and I can’t promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future.
While the USA and UK have recorded positive growth, expectations of growth throughout Europe remain uncertain. Spain has revised its forecasts downwards for 2013, expecting the economy to shrink by over 1%. Even after 2013, growth is expected to remain very weak, forecast to be 0.5% in 2014 and 0.9% in 2015. To make matters worse, Spain’s unemployment continues to move in the wrong direction, with data for the first 3 months of 2013, recording an unemployment rate of 27.2% – the highest on record.
However, it’s not just Spanish unemployment that is on the rise. Figures for March show that in France, 3.2 million people were out of work, a 1.2 % rise compared to February. In the UK, 2.56 million people were recorded as unemployed, representing just under 8% of the working population. The German economy continues to outperform its European partners, but eurozone growth continues to look weak for the rest of 2013.
Despite much bad news in Europe, growth in other parts of the world remains buoyant. South Korea has recorded economic growth that is at its highest level in 2 years. Economic growth was just under 1%, but construction and investment both increased, perhaps a sign of an economy starting its recovery.
The Chinese economy has seemed relatively unaffected by the economic downturn, yet its economic growth has slowed. Averaging over 10% per annum for the last decade, the growth for January – March 2013 was only 7.7%. This is a decline on the previous 3 months and is lower than expected. If the Chinese economy does begin to slow (relatively speaking), this could present the global economic recovery with an unwelcome obstacle.
Many Western economies are reliant on exports to boost their growth figures and with such high demand in China, this is a key export market for many countries. If the Chinese economy continues to slow, consumer spending may even fall and this could mean a reduction in Chinese imports: that is, a reduction in other countries’ exports to China. However, for China’s competitors, the news is better, as with China’s move from a low to middle-income country, other countries will now see an opportunity to grasp a competitive advantage in the production of cheaper products. David Rees from Capital Economics said:
Trade data show that Chinese imports of commodities, and industrial metals in particular, have been falling in recent months … That is bad news for those emerging markets in Latin America, the Middle East, and Africa that predominately export commodities to China. It is not all bad news … To the extent that China’s structural slowdown reflects its transition from low to middle-income status, opportunities will present themselves for other EMs as China moves up the value chain. We are particularly upbeat on the manufacturing-based economies of South East Asia, along with Mexico, Poland, and Turkey.
News is better in Japan, where growth forecasts have been raised to 2.9% over the same period and the economy is expected to grow by 1.5% throughout both 2013 and 2014. Furthermore, suggestions that inflation may also reach 0.7% have boosted confidence. This might be the end of Japan’s troubles with deflation.
So, we have something of a mixed picture across the world, although the IMF predicts a global rate of growth of 3.5% for 2013, which would be an improvement on 2012 figures. The following articles consider the global situation.
Spain slashes economic growth forecast Sky News (26/4/13)
UK avoids triple-dip recession with better than expected 0.3% GDP growth The Guardian, Heather Stewart (26/4/13)
US economy grows 2.5% on buoyant consumer spending BBC News (26/4/13)
Poor French and Spanish jobs data but UK economy returns to growth – as it happened The Guardian, Graeme Wearden and Nick Fletcher (25/4/13)
UK economy avoids tiple-dip recession with 0.3pc GDP growth The Telegraph, Szu Ping Chan (25/4/13)
South Korea economic growth hits two year high BBC News (25/4/13)
S. Korea economy grows at the fastest pace in two years Bloomberg, Eunkyung Seo (25/4/13)
Spain revises down its economic forecast BBC News (26/4/13)
US economy sees broad growth Financial Times, Robin Harding (25/4/13)
Germany’s private sector shrinks as Eurozone decline continues – as it happened The Guardian, Graeme Wearden and Nick Fletcher (23/4/13)
China economic growth lower than forecast BBC News (15/4/13)
China’s slowing economy: what you need to know Bloomberg Business Week, Dexter Roberts (25/4/13)
Modest Growth Pickup in 2013, Projects IMF International Monetary Fund (23/1/13)
Questions
- How is economic growth measured?
- What is meant by a triple-dip recession?
- What has caused the small increase in growth in the UK? Do you think this signifies the start of the economic recovery?
- In the USA, what has caused the growth rate to reach 2.5% and why is it lower than expected?
- Why are growth rates in countries across the world relevant for UK forecasts of economic growth?
- Which factors have allowed the Chinese economy to achieve average growth rates above 10% for the past decade?
- Using an AD/AS diagram, illustrate the desired impact of the Coalition’s policies to boost economic growth.
- With unemployment rising in countries like Spain and France, how might Eurozone growth be affected in the coming months?
- Japanese growth is looking positive and inflation is expected to reach about 0.7%. Why is it that Japan has suffered from deflation for so many years and why is this a problem?
Following the banking crisis of 2007/8 a new set of international banking regulations was agreed in 2010 by the Basel Committee on Banking Supervision. The purpose was to strengthen banks’ capital base. Under ‘Basel III’, banks would be required, in stages, to meet specific minimum capital adequacy ratios: i.e. minimum ratios of capital to (risk-weighted) assets. The full regulations would come into force by 2019. These are shown in the chart below.
The new Financial Policy Committee of the Bank of England has judged that some UK banks have insufficient ‘common equity tier 1 capital’. This is defined as ordinary shares in the bank plus the bank’s reserves. According to the Bank of England:
… the immediate objective should be to achieve a common equity tier 1 capital ratio, based on Basel III definitions and, after the required adjustments, of at least 7% of risk-weighted assets by end 2013. Some banks, even after the adjustments described above, have capital ratios in excess of 7%; for those that do not, the aggregate capital shortfall at end 2012 was around £25 billion.
Thus the banking system in the UK is being required, by the end of 2013, to meet the 7% ratio. This could be done, either by increasing the amount of capital or by reducing the amount of assets. The Bank of England is keen for banks not to reduce assets, which would imply a reduction in lending. Similarly, it does not want banks to increase reserves at the expense of lending. Either action could push the economy back into recession. Rather the Bank of England wants banks to raise more capital. But that requires sufficient confidence by investors.
And the end of this year is not the end of the process. After that, further increases in capital will be required, so that by 2019 banks are fully compliant with Basel III. All this will make it difficult for certain banks to raise enough capital from investors. As far as RBS and the Lloyds Banking Group are concerned, this will make the prospect of privatising them more difficult. But that is what the government eventually wants. It does not want the taxpayer to have to find the extra capital. Re-capitalising the banks, or at least some of them, may prove difficult.
The following articles look at the implications of the FPC judgement and whether strengthening the banks will strengthen or weaken the rest of the economy.
Articles
Financial policy committee identifies £25bn capital shortfall in UK banks The Guardian, Jill Treanor (27/3/13)
Banks Told To Raise Capital By Financial Policy Committee To Cushion Against A Crisis Huffington Post (27/3/13)
UK banks’ £25bn shortfall: positive for banks, negative for BoE credibility, Sid Verma (27/3/13)
Doubts over Bank of England’s £25bn confidence game The Telegraph, Harry Wilson (27/3/13)
Bank of England tells banks to raise £25bn BBC News (27/3/13)
Q&A: Basel rules on bank capital – who cares? Laurence Knight (13/9/10)
U.K. Banks Seen Avoiding Share Sales After BOE Capital Review Bloomberg Businessweek, Gavin Finch and Howard Mustoe (27/3/13)
Banks Cut Basel III Shortfall by $215 Billion in Mid-2012 Bloomberg (19/3/13)
Will strengthening banks weaken the economy? BBC News, Robert Peston (27/3/13)
Bank of England News Release
Financial Policy Committee statement from its policy meeting, 19 March 2013 Bank of England (27/3/13)
Questions
- Explain the individual parts of the chart.
- What do you understand by risk-weighted assets?
- Distinguish between capital adequacy ratios and liquidity ratios.
- What could the banks do to increase their capital adequacy ratios? Compare the desirability of each method.
- If all banks around the world were Basel III compliant, would this make another global banking crisis impossible?
After a week of turmoil in Cyprus (see the News item Ochi, ochi, ochi) a deal has been struck between Cyprus, the EU and the IMF over a €10bn bailout for the island’s banking system. But while the deal may bring the immediate crisis to an end, the Cypriot economy could face years of austerity and depression. And there remain questions over whether the deal sends the wrong message to depositors in banks in other eurozone countries whose banking systems are under pressure.
Unlike the original EU proposal, the deal will not impose a levy on deposits under €100,000, much to the relief of small and medium depositors. But individuals and businesses with deposits over €100,000 in the two main troubled banks (Laiki and the Bank of Cyprus) will face losses that could be as high as 40%. The precise size will become clear in the coming days.
The troubled second largest bank, Laiki (Popular) Bank, will be split into a ‘good’ and a ‘bad’ bank. The assets and liabilities of the good part will be taken over by the largest bank, the Bank of Cyprus. Thus people’s accounts under €100,000 will be moved from one to the other. The ‘bad’ part will include deposits over €100,000 and bonds. Holders of these could lose a substantial proportion of their value.
Many businesses will be hard hit and may be forced to close. This could have serious adverse multiplier effects on the economy. These effects will be aggravated by the fiscal austerity measures which are also part of the deal. The measures are also likely to discourage further inward investment, again pushing the economy further into recession.
And then there are the broader effects on the eurozone. The direct effect of a decline in the Cypriot economy would be tiny; the Cypriot economy accounts for a mere 0.2% of eurozone GDP. Also the effect on small savers in other eurozone countries is also likely to be limited, as people will probably be reassured that savings under €100,000 have remained protected, even in an economy as troubled as Cyprus.
But some commentators argue that the effect on large depositors in other troubled eurozone countries, such as Portugal, Spain, Greece and Italy, could be much more serious. Would people with large balances in these countries prefer to move their money to, say, Germany, or even out of the eurozone altogether? There is clearly disagreement over this last point as you will see from the articles below.
Webcasts and Podcasts
Cyprus agrees bailout with eurozone ministers The Guardian (25/3/13)
Cyprus bailout: Deal reached in Eurogroup talks BBC News (25/3/13)
‘Disaster avoided’ as Cyprus agrees EU bailout deal Euronews (25/3/13)
Cyprus saved from bankruptcy Channel 4 News on YouTube, Faisal Islam (25/3/13)
What are the implications of the Cyprus deal? BBC Radio 4 Today Programme, Stephanie Flanders (25/3/13)
Cyprus bailout deal: Russia riled but Germany relieved BBC News, Steve Rosenberg in Moscow and Stephen Evans in Berlin (25/3/13)
Cyprus bailout deal ‘durable’ says IMF chief BBC News, Christine Lagarde (25/3/13)
Cyprus Bailout Deal Raises Questions: Lombardi Bloomberg, Domenico Lombardi (25/3/13)
Minister Michalis Sarris: Cyprus paying ‘tremendous cost’ BBC Radio 4 Today Programme, Michalis Sarris (26/3/13)
Articles
Last-minute Cyprus deal to close bank, force losses Reuters, Jan Strupczewski and Annika Breidthardt (25/3/13)
Cyprus strikes last-minute EU bailout deal The Guardian, Ian Traynor (25/3/13)
‘There is no future here in Cyprus’ The Telegraph, Nick Squires (25/3/13)
Back from the brink: EU ministers approve €10bn bailout deal at 11th-hour to save Cyprus Independent, Charlotte McDonald-Gibson and Majid Mohamed (25/3/13)
Cyprus bailout: Deal reached in Eurogroup talks BBC News (25/3/13)
Q&A: Cyprus deal BBC News (25/3/13)
The rescue of Cyprus won’t feel like one to its people BBC News, Robert Peston (25/3/13)
Lessons of Cyprus BBC News, Stephanie Flanders (25/3/13)
Cyprus bailout: Dijsselbloem remarks alarm markets BBC News (25/3/13)
Cyprus saved – but at what cost? The Guardian, Helena Smith (25/3/13)
Cyprus bail-out: savers will be raided to save euro in future crisis, says eurozone chief The Telegraph, Bruno Waterfield (25/3/13)
Cyprus’s banks have been tamed – are Malta and Luxembourg next? The Guardian, Ian Traynor (25/3/13)
Lehman lessons weigh on Cyprus talks but 1920s slump must not be ignored The Guardian, Larry Elliott (24/3/13)
Questions
- Explain what is meant by ‘moral hazard’. What moral hazards are implicit in the deal that has been struck with Cyprus?
- How does the size of the banking system in Cyprus as a proportion of GDP differ from that in other troubled eurozone countries? How does this affect the ‘contagion’ argument?
- Does the experience of Iceland and its troubled banks suggest that the Cypriot problem has nothing to do with its being in the eurozone?
- What options are open to the Cypriot government to stimulate the economy and prevent a severe recession? How realistic are these options (if any)?
- What are the likely implications of the deal for the economic relationships (as opposed to the political ones) between Cyprus and Russia and between the eurozone and Russia?
- Are there any similarities in the relationships between the weak and strong eurozone countries today and those between Germany and other countries in the 1920s and 30s?
Banks in Cyprus are in crisis. They have many bad debts e.g. to Greece and as mortgages in a falling property market. Private-sector debts have become unsustainable for the banks. The problem is compounded by negative economic growth and large government deficits (see chart). But, as with Icelandic banks back in 2008, this means a crisis for the whole country.
The reason is that the banking sector in Cyprus, as in Iceland and Ireland too, is large relative to the whole economy – over 8 times annual GDP (second only to Ireland in the EU). Loans to Greece alone are as much as 160% of Cyprus’ GDP and Cypriot banks were badly hit by the terms of the Greek bailout, which required creditors to take a 53% reduction (or ‘haircut’) in the value of their loans to Greece. With such a large banking sector, it is impossible for the Cypriot government alone to rescue the banks.
Cyprus thus turned to the EU for a bailout: back in June 2012. This makes Cyprus the fifth country to seek a bailout (after Greece, Ireland, Portugal and Spain). A bailout of €10 billion has just been agreed by the EU and IMF. The bailout comes with the ‘usual’ conditions of strong austerity measures of tax rises and cuts in government expenditure. But what makes this bailout different from those given to the other countries was a proposed levy on savers.
The proposal was that people with up €99,999 in their bank accounts (of any type) would face a one-off tax of 6.75%. The rate for those with €100,000 or more would be 9.9%, including on the first €99,999. This would raise around €5.8 billion of the €10 billion.
Not surprisingly, there was a public outcry in Cyprus. People had thought that their deposits were protected (at least up to €100,000). There was a run on cash machines, which, as a result were set to deliver just small amounts of cash to cope with the excessive demand. There was huge pressure on the Cypriot government not to introduce the measure.
But the ramifications of the proposed levy go well beyond the question of justice to savers. Questions are being raised about its incentive/disincentive effects. If people in other countries in future financial difficulties felt that they might face similar levies, how would they behave? Also, there is no haircut being proposed for holders of banks’ bonds. As Robert Peston states in his first article below:
The Cypriot deal sets back the cause of the new global rules for bringing order to banking systems when crisis hits. Apart from anything else, in other eurozone countries where banks are weak, it licenses runs on those banks, as and when a bailout looms.
But getting incentives right is not easy. As the Buttonwood column in The Economist points out:
The problem is tied up with the issue of moral hazard. This can be applied to both creditors and debtors; the former should be punished for reckless lending and the latter for living beyond their means. The collapse of Lehman Brothers is seen as an example of the faulty reasoning behind moral hazard; by letting the bank go bust, the crisis was spread throughout the financial system. But rescuing every creditor (or intervening to bail out the markets every time they falter) is the reason we are in this mess.
One alternative considered by the Cyprus parliament was to exempt people with less than €20,000 in their accounts from the levy. But this was rejected as being insufficient protection for savers. Another is to exempt people with less than €100,000, or to charge people with between €20,000 and €100,000 at a lower rate or rates.
But charging less, or nothing, on deposits of less than €100,000 would make it harder to to raise the €5.8 billion required by the EU. Without alternative measures it would mean charging a rate higher than 9.9% on larger deposits. The Cypriot government is afraid that this would discourage inward investment. Russia, in particular, has invested heavily in the Cyprus economy and Russia is campaigning vigorously to limit the size of the levy on large deposits. But there is little sympathy for Russian depositors, much of whose deposits are claimed to be ‘laundered money’. The Cypriot government has been seeking financial support from the Russian government.
An alternative proposal being considered is to issue government bonds in an “investment solidarity fund” and to transfer pension funds from semi-public companies to the state. Also Russia may be willing to invest more money in Cyprus’ offshore oil and gas fields.
Agreement
A deal was struck between Cyprus and the EU/IMF early in the morning of 25 March, just hours before the deadline. For details, see the News Item Cyprus: one crisis ends; another begins.
Webcasts and podcasts
Eurozone ministers agree 10bn euro Cyprus bailout Channel 4 News (16/3/13)
Bailout is ‘blackmail’ claims Cyprus president Euronews (17/3/13)
Cyprus’s president tries to calm fears over EU bailout The Guardian (18/3/13)
Cypriot bank customers reactions to savings levy BBC News (17/3/13)
Cyprus bailout: Parliament postpones debate amid anger BBC News (17/3/13)
Cyprus parliament delays debate on EU bailout Al Jazeera (17/3/13)
Cyprus told it can amend bailout, as key vote postponed BBC News, Gavin Hewitt (18/3/13)
Robert Peston: Cyprus bailout an ‘astonishing mess’ BBC News, Robert Peston (18/3/13)
Cyprus bailout is ‘completely unfair’ BBC Radio 4 Today Programme, Michael Fuchs and Bernadette Segol (18/3/13)
Lenders ‘doing everything you should not do’ on Cyprus BBC Radio 4 Today Programme, Alistair Darling (19/3/12)
Cyprus warned over bailout rejection BBC News (20/3/13)
Articles
Cyprus becomes fifth eurozone bailout The News International (Pakistan) (17/3/13)
Cyprus bailout deal sparks run on ATMs Irish Independent (17/3/13)
EU leaders gamble in Cyprus bank bailout BBC News, Gavin Hewitt (17/3/13)
Cyprus told it can amend bailout, as key vote postponed BBC News (18/3/13)
Q&A: Cyprus bailout BBC News (19/3/13)
Cyprus’ President Defends Bailout Deal The Motley Fool (16/3/13)
Sad Cyprus The Economist, Buttonwood’s Notebook (12/3/13)
The Cypriot bail-out: A fifth bitter lemon The Economist (30/6/12)
Analysis: Cyprus bank levy risks dangerous euro zone precedent Reuters, Mike Peacock (17/3/13)
The Cyprus precedent Reuters, Felix Salmon (17/3/13)
The Cyprus Bank Bailout Could Be A Disastrous Precedent: They’re Reneging On Government Deposit Insurance Forbes, Tim Worstall (16/3/13)
Cyprus rescue breaks all the rules BBC News, Robert Peston (18/3/13)
Cyprus and the eurozone’s survival BBC News, Robert Peston (20/3/13)
Eurogroup defends Cyprus bail-out The Telegraph (17/3/13)
Cyprus eurozone bailout prompts anger as savers hand over possible 10% levy The Guardian (16/3/13)
Cyprus’s wealth tax makes perfect sense – its rich won’t escape unscathed The Guardian, Phillip Inman (18/3/13)
The tragedy of Cyprus The Real Economy blog, Edmund Conway (16/3/13)
Damage limitation in Cyprus BBC News, Stephanie Flanders (19/3/13)
The fatal flaw in the eurozone’s not-so-cunning plan for Cyprus The Guardian, Larry Elliott (19/3/13)
Cyprus plans special fund in race to get EU-IMF bailout BBC News, (21/3/13)
Cyprus says ‘significant progress’ in debt crisis talks BBC News (23/3/13)
Background information
The Banking System in Cyprus: Time to Rethink the Business Model? Cyprus Economic Policy Review, Vol. 5, No. 2, pp. 123–130, Constantinos Stephanou (2011)
European sovereign-debt crisis Wikipedia
Questions
- What is the justification given by the Cypriot government and the EU for imposing a levy on bank deposits?
- What alternative measures could have been demanded by the EU? Why weren’t they?
- What is the significance of Russian deposits in Cypriot banks?
- Compare the benefits of the proposed levy rates with the alternative of imposing levies only on deposits over €100,000, but at higher rates (perhaps tiered).
- Explain the moral hazard issues in bailing out the Cypriot banks.
- How serious is the problem that imposing a tax on deposits in Cypriot banks might have adverse affects on the behaviour of depositors in other countries’ banks?
- How might Cypriots behave in future in regards to depositing money in banks? What impact could this have on the economy of Cyprus?
- Explain “the unholy trinity of options facing indebted nations (inflate, stagnate, default)”. Compare the effectiveness of each.
As part of the Basel III round of banking regulations, representatives of the EU Parliament and member governments have agreed with the European Commission that bankers’ bonuses should be capped. The proposal is to cap them at 100% of annual salary, or 200% with the agreement of shareholders. The full Parliament will vote in May and then it will go to officials from the 27 Member States. Under a system of qualified majority voting, it is expected to be accepted, despite UK resistance.
The main arguments in favour of a cap are that it will reduce the focus of bankers on short-term gains and reduce the incentive to take excessive risks. It will also appease the anger of electorates throughout the EU over bankers getting huge bonuses, especially in the light of the recession, caused in major part by the excesses of bankers.
The main argument against is that it will drive talented top bankers to countries outside the EU. This is a particular worry of the UK government, fearful of the effect on the City of London. There is also the criticism that it will simply drive banks into increasing basic salaries of senior executives to compensate for lower bonuses.
But it is not just the EU considering curbing bankers’ pay. The Swiss have just voted in a referendum to give shareholders the right to veto salaries and bonuses of executives of major companies. Many of these companies are banks or other financial sector organisations.
So just what will be the effect on incentives, banks’ performance and the movement of top bankers to countries without such caps? The following videos and articles explore these issues. As you will see, the topic is highly controversial and politically charged.
Meanwhile, HSBC has revealed its 2012 results. It paid out $1.9bn in fines for money laundering and set aside a further $2.3bn for mis-selling financial products in the UK. But its underlying profits were up 18%. Bonuses were up too. The 16 top executives received an average of $4.9m each. The Chief Executive, Stuart Gulliver, received $14.1m in 2012, 33% up on 2011 (see final article below).
Webcasts and podcasts
EU moves to cap bankers bonuses Euronews on Yahoo News (1/3/13)
EU to Curb Bank Bonuses WSJ Live (28/2/13)
Inside Story – Curbing Europe’s bank bonuses AlJazeera on YouTube (1/3/13)
Will EU bonus cap ‘damage economy’? BBC Radio 4 Today Programme (28/2/13)
Swiss back curbs on executive pay in referendum BBC News (3/3/13)
Has the HSBC scandal impacted on business? BBC News, Jeremy Howell (4/3/13)
Articles
Bonuses: the essential guide The Guardian, Simon Bowers, Jill Treanor, Fiona Walsh, Julia Finch, Patrick Collinson and Ian Traynor (28/2/13)
Q&A: EU banker bonus cap plan BBC News (28/2/13)
Outcry, and a Little Cunning, From Euro Bankers The New York Times, Landon Thomas Jr. (28/2/13)
Bank bonuses may shrink – but watch as the salaries rise The Observer, Rob Taylor (3/3/13)
Don’t cap bank bonuses, scrap them The Guardian, Deborah Hargreaves (28/2/13)
Capping banker bonuses simply avoids facing real bank problems The Telegraph, Mats Persson (2/3/13)
Pro bonus The Economist, Schumpeter column (28/2/13)
‘The most deluded measure to come from Europe since fixing the price of groceries in the Roman Empire’: Boris Johnson attacks EU banker bonus cap Independent, Gavin Cordon , Geoff Meade (28/2/13)
EU agrees to cap bankers’ bonuses BBC News (28/2/13)
Viewpoints: EU banker bonus cap BBC News (28/2/13)
Voters crack down on corporate pay packages swissinfo.ch , Urs Geiser (3/3/13)
Swiss voters seen backing executive pay curbs Reuters, Emma Thomasson (3/3/13)
Swiss referendum backs executive pay curbs BBC News (3/3/13)
Voters in Swiss referendum back curbs on executives’ pay and bonuses The Guardian, Kim Willsher and Phillip Inman (3/3/13)
Swiss vote for corporate pay curbs Financial Times, James Shotter and Alex Barker (3/3/13)
HSBC pays $4.2bn for fines and mis-selling in 2012 BBC News (4/3/13)
Questions
- How does competition, or a lack of it, in the banking industry affect senior bankers’ remuneration?
- What incentives are created by the bonus structure as it is now? Do these incentives result in desirable outcomes?
- How would you redesign the bonus system so that the incentives resulted in beneficial outcomes?
- If bonuses are capped as proposed by the EU, how would you assess the balance of advantages and disadvantages? What additional information would you need to know to make such an assessment?
- How has the relationship between banks and central banks over the past few years created a moral hazard? How could such a moral hazard be eliminated?
The latest growth data for the UK is somewhat difficult to interpret. It’s positive, but not that positive. The Conservatives say it shows that the economy is moving in the right direction. Labour suggests it is evidence that the Coalition’s policies are not working. With a return to positive growth, the UK has avoided the triple dip recession and here we take a closer look at the economic performance of other key nations.
However, the growth figure was lower than expected, in part due to lower government spending. Furthermore, there are suggestions that the positive consumer spending figures are merely a positive blip and spending will fall as the US economy moves through 2013.
