IBT News Blog

An article from the british newspaper The Independent, published on April 23, deals with the financial bubble burst in China which started last October, and which affected the CSI 300, the leading indice of the Shenzhen and the Shangai stock exchanges. This market decline is described by the commentator as the most severe since the record reached by the CSI 300 in mid-October 2007.

The shock was hard for investors of the Shangai stock exchange, as a majority of them are retail investors, that is to say, individual investors who purchased small amounts of securities. Many Chinese people had invested much of their personal assets to buy stocks and take advantage of the financial positive trend. The commentator further explains (this may be directly linked to small investors' inexpertise) that lack of diversification of portfolios for a majority of investors could just make the strike more painful.

As a response to the decline, the Chinese Government lowered the tax on securities transactions from 0,3% to 0,1% on April 24 (that was already its level in May 2007, before the same Government decided to raise it to 0,3% to cool down what was considered as an overheated market at the time). The decision was greatly appreciated by investors at large, since the CIS 300 went up by almost 10% on the same day. But for experts, this governmental intervention will only have a positive impact on the short term.

To read the analysis from The Independent, written before the Chinese Government intervention, follow the link below:

http://www.independent.co.uk/news/business/analysis-and-features/chinas-bubble-bursts-814073.html

Tina Wetchy

This is an observation about current bank practices and its interaction with the economy. Interesting read.

http://www.economist.com/opinion/displaystory.cfm?story_id=11089594

submitted by aurelia

The Office of the Comptroller of the Currency (OCC) was established in 1863 as a bureau of the US Department of the Treasury. The OCC charters, regulates and supervises all national banks. Furthermore, it supervises the federal branches and agencies of foreign banks.

Typical to many government agencies, the OCC performs quasi-legislative and quasi-judicial functions. It has the authority to issue agency rules, legal interpretations, and corporate decisions concerning banking, bank investments, bank community development activities, and other aspects of bank operations.

The OCC activities are based upon four objectives: 1) to ensure the safety and soundness of the national banking system; 2) to encourage competition by allowing banks to offer new products and services; 3) improving the efficiency and effectiveness of the OCC; and 4) to ensure fair and equal access to financial services of all Americans.

http://www.occ.treas.gov/aboutocc.htm

Recently, the OCC announced the creation of a new group to focus on international supervision, stating that "International banking issues have grown increasingly important to the OCC and the national banking system."

http://www.occ.treas.gov/ftp/release/2008-37.htm

This could raise several questions concerning increased political administration in private banking issues. Essentially, since the OCC has the authority to pass regulations and enforce them upon national banks, it has the ability to affect how national banks engage in international agreements.

Suppose that the President decides that it does not condone political activity in Cuba. To foreclose investment in tandem with US banks, the President orders the OCC to scrutinize prospective banks who are in communications with Cuban investors. Effectively, without formal action or accountability, the executive can unilaterally prevent private investment activity to further unrelated agendas.

Granted, perhaps that is a very cynical view, but in my opinion it is not that improbable for the Executive to exercise his influence in that matter. Do you agree that this could create an avenue for underhanded political activity in international banking? Or do you think that the creation of the new group on international activity in OCC will ultimately lead to better coordinated and more profitable investment activity while protecting the banking industry within the United States?

submitted by: Brian

On April 16, the House passed the Jubilee Act for Responsible Lending and Expanded Debt Cancellation (HR 2634), sending the legislation to the Senate. The legislation calls on the US Treasury Department to negotiate at the International Monetary Fund (IMF) and World Bank for an agreement for debt cancellation for poor countries that need cancellation to meet the Millennium Development Goals (MDGs) but do not currently qualify for the current IMF/World Bank debt relief initiative.

Here's a link to the House bill.

Although we are a couple weeks away from discussing the topic of "international banking" this brief piece in the New York Times points out the incredible potential of capital outside the U.S. The image attached to the article attempts to show the various major channels of capital flow throughout the world.

See, http://dealbook.blogs.nytimes.com/2008/04/02/follow-the-money/