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The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

“Straightforward to characterise, but difficult to quantify”. The Independent Commission on Banking (ICB), a group assembled by the British government to make recommendations on regulatory reforms, delivered its interim report on April 11th. “Everyone agrees that we need a much more robust banking system than that of the past decade”, said Sir John Vickers, the ICB’s chairman.

A week after the report’s publication, markets continue to mull the implications of the report, as well as the prospects for British banking in general. Tellingly, the initial rally in many banks’ shares immediately following the release of the report quickly fizzled, with all of the major banks now trading below the levels seen on the eve of the report’s publication

It appears that the UK’s approach to restructuring its banking system will rely on higher capital requirements for retail units and an attempt to engineer a viable “challenger” to the biggest banks from the portfolio of Lloyds Banking Group. Other countries with significant financial centres, like Switzerland, have already gone further on capital requirements while others, like the US, have been stricter on limiting the market share of major players.

It may take years to judge whether regulators can promote a more stable and competitive banking market in the UK. In the meantime, markets have shorter-term concerns.

Read more at Financial Services Briefing: “For better or worse” (April 20th)

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Today, Wells Fargo reported  record quarterly earnings of US$3.8bn, up nearly 50% on the same quarter last year. JPMorgan kicked off the reporting season last week with quarterly net profit growth of 67%. The country’s other banking giants—Bank of America, Citigroup and Goldman Sachs—shared less encouraging news, with first-quarter profits down on last year.

What all of these banks have in common, however, is falling revenues. From racy investment banks to retail-focused lenders, America’s largest banks are still shrinking. Releasing provisions and cutting costs can only go so far; a true recovery will begin when top lines start to grow again.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

These are tense times for Turkish bankers. The five-year term of Durmus Yilmaz, the country’s central bank governor, ends on April 18th. His successor, announced on April 14th, is Erdem Basci, a long-standing deputy governor. The change at the top comes as the risks to Turkey’s economic and financial stability are rising, not least due to a ballooning current account deficit fuelled by a credit-driven surge in domestic demand.

The appointment of Mr Basci ensures continuity at the central bank, but since he is seen as close to deputy prime minister Ali Babacan worries are surfacing about the extent of the central bank’s independence from the government. The unorthodox two-pillar approach adopted by Turkey’s central bank since December has combined steady increases in banks’ reserve requirements at the same time as reductions in short-term interest rates. Although government ministers have commended these policies, Turkey’s bankers complain that recent measures unduly punish the industry.

Read more at Financial Services Briefing: “Changing of the guard” (April 14th)

As ever, the IMF’s latest Global Financial Stability Report is worth a look, not least because the organisation’s chart makers seem to be getting a lot more creative. Some of the infographics in the report’s latest edition verge on the psychedelic.

More importantly, however, the IMF issues a stern rebuke to financial regulators for “incomplete policy actions and inadequate reforms”. The global banking system remains vulnerable to shocks, as some lenders remain “caught in a maelstrom of interlinked pressures”, the IMF warns.

Euro area banks are singled out as particularly vulnerable. Thinly capitalised and more reliant on wholesale funding than many of their counterparts elsewhere, some of the currency union’s banks—particularly those in the bloc’s troubled periphery—are now shut out from most funding markets. This is reflected in the interest rates that the most desperate banks are offering on deposits, seeking to reduce their reliance on official support by luring funds from wary savers.

The rate hikes by Greek, Portuguese and Irish banks in recent months have been significant, dampening these institutions’ profitability and prolonging an already protracted recovery process. Another interesting conclusion to draw from the chart—adapted from the one that appears in the IMF’s report—is that banks in Italy seem relatively more desperate for deposits than banks in Spain.

The perilous fiscal state of some euro area member states has been a long-running saga. It will continue to run, despite assurances from the currency union’s leaders—in reality, “something between a fudge and a failure”—following a high-profile summit last week.

To coincide with the summit, the EIU published a report on the euro area (free registration required), featuring a set of forecast scenarios and a custom-built “Debt Crisis Monitor”. The monitor measures the vulnerability of euro area countries to a debt restructuring, with a headline index comprised of three sub-indices for sovereign solvency, sovereign liquidity and the banking sector.

On the banks, Ireland unsurprisingly ranks top—by some distance—as far as riskiness is concerned. Some of the other results are more noteworthy: Cyprus has the second-riskiest banking sector in the euro area; lenders in the Netherlands are the least healthy in the “core” euro area; and banks in Germany and Italy are seen as equally risky despite the countries’ diverging fiscal fortunes.

Apologies for the light posting of late. The chart makers have been busy on a number of large projects, including exciting plans for the future of this site. Normal blogging will resume towards the end of next week.

In the meantime, as always, normal service continues at the parent site.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Although a reckoning was overdue, the suddenness of South Korea’s suspension of eight savings banks was surprising. Signs of strain at the small, community-based lenders were long apparent; heavy exposure to the property industry put loan portfolios at risk as construction activity cooled and housing prices stagnated. Nevertheless, the suspensions of one bank last month and seven so far this month has generated drama, and some fear, in the country.

The recent suspensions were the first such actions taken against savings banks by the Financial Services Commission (FSC), South Korea’s financial industry watchdog, since October 2000, when 17 savings banks were forcibly shut down. The FSC issued “corrective” orders to wayward savings banks in the intervening years, but the severity of shortcomings at some lenders required more drastic measures. The suspension of Samwha Mutual Savings Bank last month spooked savers, who hastily withdrew billions of won from other savings banks, leading to a further seven suspensions (including Busan Savings Bank, the country’s largest savings bank).

Read more at Financial Services Briefing: “Big trouble at little lenders” (February 24th)

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Weeks before a wave of revolutions began to spread across North Africa and the Middle East, Côte d’Ivoire held a presidential election at the end of November. It did not produce a clear winner, but instead provoked a political stand-off that spurred international sanctions and, this week, led to a total shutdown of the country’s financial sector.

One by one the largest private banks closed their branches. As the closures mounted, the disputed winner of the November election, Laurent Gbagbo, showed the increasing desperation of his situation by announcing late on February 17th that his government had seized four major international banks: the subsidiaries of Société Générale, BNP Paribas, Citibank and Standard Chartered. This could mark the beginning of the end in Côte d’Ivoire’s political turmoil, as the credit crunch is severely affecting the ability of Mr Gbagbo’s government to function.

Read more at Financial Services Briefing: “Seized up” (February 18th)

It was a banner year for banks in Indonesia. Year-end data from the country’s central bank, released today, shows that lenders made Rp57.3trn (US$6.4bn) in 2010, nearly 30% higher than the year before and almost double the result five years ago.

Bank loans in Indonesia grew by 23% last year, and yet the system’s overall non-performing loan ratio ended the year at 2.6%, down from 3.3% the year before. Listed Indonesian banks enjoy the highest price-to-book ratio among their peers in Asia, driven by region-topping levels of profitability. Banks in the country are so profitable, in fact, that the central bank urged them not to pass on a recent interest rate hike, given that banks’ lending margins, in the words of the economic minister, are already “too high”.

Between 2008 and 2010, 72 financial institutions rated by Moody’s defaulted on bonds worth US$318bn. From 1983 to 2007, there were 96 financial defaults, affecting “only” US$46bn in debt.

Given the severity of the recent crisis, it follows that the prospects of recovery for creditors were dim. Indeed, loan holders recovered far less from defaulted debt during the recent crisis than over the previous 20+ years. On bonds, however, recovery rates were little changed from before. A larger than usual share of distressed exchanges—a discounted repurchase of bonds or substitution for a new set of securities—explains the boost to recoveries during the latest crisis (30% of 2008-10 defaults versus 10% in 1983-2007). In other words, creditors took what they could get from teetering banks before the borrowers went bust and potentially left them with nothing.

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