Russian officials, armed with the third largest forex reserves in the world, are trying to project an image of self-confidence.

Russian officials, armed with the third largest forex reserves in the world, are trying to project an image of self-confidence. They are blaming the crisis on the United States.They need to calm nerves among foreign investors in particular because much of the money that had been fleeing the Russian market and causing dramatic stock market loss is foreign-owned.But ordinary Russians, who have been dumping roubles, and Western portfolio managers are not entirely convinced.“The question everybody has is where is the bottom? I am sick of putting money in and watching it disappear. There is no liquidity, no-one is buying, it is like a nightmare,” said John Connor, portfolio manager at U.S. fund Third Millennium Russia. “It is like going to Las Vegas and watching the money fall through the floor. I am not into gambling with my investors’ money.”Aivaras Abromavicius, from Sweden’s East Capital, asked Kremlin’s economic aide Arkady Dvorkovich what the government is planning to do about some majority owners pulling out of share buyouts despite complaints from minority shareholders.Dvorkovich said the matter should be taken to court and the government did not plan to interfere in court decisions. Abromavicius said he was happy Dvorkovich was at least aware of the problem.He added that Western funds were worried about arbitrary trade stoppages in the Russian bourses, which hindered fund redemptions, and were in his view a sign that the Russian market was still far from being civilised.The government has unveiled a package of over $200 billion to keep the economy going and some investors, who also work in other ex-Soviet countries, have praised Moscow’s response.“Unlike many other states, Russia makes decisions, takes measures, works out strategy. They have the money and the political will,” Abromavicius said. “What you need the least is officials sowing panic.”Russian officials have become harder to reach with secretaries saying they are out in meetings all day. Shuvalov spent all morning on Tuesday in closed-door talks with a group of UK businessmen led by business minister Peter Mandelson.

State-owned Development Bank, also known as VEB, has been entrusted by the Kremlin to distribute a $50 billion rescue package

Russian billionaires became fabulously rich in the 1990s during the so-called loan-for-shares schemes when they lent money to the state and got stakes in prized firms as collateral. The state never paid back the loans, allowing future tycoons to become owners at a fraction of the real value."Today, it's almost like a reversal of the shares-for-loans scheme," said Kavanagh at UralSib.The idea of another round of property nationalization or redistribution now seems appealing even to some rich.
"Why did Deripaska get the money? I don't understand why?" said banker Alexander Lebedev, a former Soviet spy who was once stationed in London at the Soviet Embassy.
State-owned Development Bank, also known as VEB, has been entrusted by the Kremlin to distribute a $50 billion rescue package, helping Russian companies to refinance a total of $120 billion of Western loans by the end of 2009.The first round of payouts has already been approved.VEB disbursed $2 billion to Mikhail Fridman's Alfa Group to help it pay back a loan to Deutsche Bank and rescue Alfa's 44 percent stake in Russia's No. 2 mobile phone firm, Vimpelcom, which was used as collateral with the bank.Fridman joined Oleg Deripaska, Russia's richest man, who this week became the first billionaire to get state support in refinancing his foreign debts.VEB has said no company would get more than $2.5 billion, but Deripaska's aluminum major, United Company RUSAL, received $4.5 billion to pay back debt to foreign banks, which it amassed to buy 25 percent in mining giant Norilsk Nickel."It is possible that neither Alfa nor UC RUSAL will find fresh cash to repay the VEB loans, and the state could eventually get the stakes in both Norilsk Nickel and Vimpelcom," analysts from UniCredit Aton said in a note.

American Express will notify its card members in the coming weeks that it will initiate a broad-based interest rate hike.

Big-name credit card issuers, including Bank of America, Chase and American Express, are shrinking -- not raising -- some credit limits. And some, including Chase, are closing some accounts.American Express will notify its card members in the coming weeks that it will initiate a broad-based interest rate hike -- not a cut.
Rates on American Express cards are expected to go up by 2 percentage points to 3 percentage points.

European Central Bank's lending to financial institutions surged to a record as it pumped extra cash into the banking system

European Central Bank's lending to financial institutions surged to a record as it pumped extra cash into the banking system to ease a funding gridlock. The Frankfurt-based central bank said its outstanding euro loans to banks rose to 773.7 billion euros ($1.01 trillion) yesterday, the largest amount ever, from 753.1 billion euros a day earlier. The figure does not include the ECB's dollar loans. Lending between banks ran dry after Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15, shattering confidence among lenders and sending borrowing costs to records. Money- market rates in London are falling after governments bailed out banks and policy makers intensified efforts to encourage lending with cash injections. The ECB has also signaled it's ready to follow its emergency interest-rate cut on Oct. 8 with another reduction next week.

Banks continued to queue up for state aid. In Austria, Erste Group Bank said it will be getting a 2.7 billion euro ($3.4 billion) equity injection

Banks continued to queue up for state aid. In Austria, Erste Group Bank said it will be getting a 2.7 billion euro ($3.4 billion) equity injection from the Austrian government at annual interest of 8 percent, as it posted results in line with estimates.
And Kazakhstan's BTA said it expected the government to inject $2.3 billion into its capital as part of a $5 billion bank bailout package announced earlier this week.
Erste is the first Austrian bank to accept capital from the state's 100 billion euro bank support programme and a major lender in emerging Europe. The move will boost its tier 1 capital ratio to more than 10 percent by the end of the year, when it expected the deal to close.
Erste posted a 17 percent decline in third-quarter net profit before one-off gains, as loan loss provisions more than doubled, its trading profit almost evaporated and costs continued to rise.
And in the UK, Lloyds TSB named its management team following the proposed takeover of HBOS, a deal done before the UK government unveiled its support package for the banking system.
The line-up was dominated by names from Lloyd's existing team, with only two out of nine coming from HBOS.
Lloyds stepped in to buy HBOS last month in a government-brokered deal, after its rival was hit by the credit crunch and concerns about its exposure to the UK housing market

Bursting of the biggest credit bubble in world history is battering emerging-market powerhouses that only months ago were seen as pillars

Bursting of the biggest credit bubble in world history is battering emerging-market powerhouses that only months ago were seen as pillars of global strength, sparking runs on their currencies and dramatic plunges in their sharemarkets. The Brazilian real and Korean won, for instance, have both shed more than 30% against the dollar in the past two months as panicked investors have yanked billions out of the market. Hungary, also among those countries hit hardest, has already struck a deal for a loan with the IMF, and the European Central Bank said on Wednesday it would join in the $US25.1 billion bail-out.Making matters worse, many financial institutions in the developing world are struggling for cash as banks in the developed world, themselves facing a credit crunch, pull in their lines of credit. Governments, companies and even consumers have loans and other bets denominated in US dollars, making those debts suddenly more expensive as their domestic currencies sink against the dollar.By offering emergency loans to the central banks in key emerging markets, the Fed and the IMF are giving institutions more power to jump-start lending in their home countries, many of which have spent billions of their reserves defending their currencies in recent weeks.The Fed made clear that it viewed the risks facing the US economy to be severe. "The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," the Federal Open Market Committee said in an unusually blunt statement. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."The rate cut is designed to guard against the risk of a devastating downturn. In normal times, Fed rate cuts make it cheaper for businesses to borrow to expand and for consumers to get car loans, home mortgages and credit card debt. But in the current crisis, with banks reluctant to lend at any price, the rate's impact is uncertain.Nonetheless, many economists think the Fed will cut the rate again at its December 16 meeting, if not before, as the economy worsens.By offering new loans with flexible terms, the IMF is breaking with decades of highly methodical lending that came with tough conditions.Only nations viewed as fundamentally sound and with good relationships with the fund can participate in the program. Countries deemed not to have good track records, such as Argentina, would not be eligible.The short-term loans would have three-month terms, in contrast with the three-to-five-year terms of typical IMF loans.

Metals magnate Oleg Deripaska to pay off a loan to a group of Western banks

National development bank VEB announced Wednesday that it had approved nearly $10 billion in government bailout credits to Russian companies that have foreign loans coming due, without naming the companies.Russian government has agreed to loan $4.5 billion to metals magnate Oleg Deripaska to help him pay off a loan to a group of Western banks, newspapers reported Thursday.The respected Russian business newspaper Vedomosti reported that Deripaska was among the beneficiaries. This was also reported by The Wall Street Journal and Financial Times, both co-owners of the Russian paper. All three cited unnamed sources.VEB said Thursday it was not ready to release the names of loan recipients.Russia's wealthiest businessmen, dubbed oligarchs, are facing a shakeout after many of them borrowed heavily in recent years, often using their firms' shares as collateral. When Russian stocks plunged over the past few weeks, their creditors began demanding that they put up more collateral or risk losing their shares.Wall Street rises after report on economyU.S. economy shrinks in 3rd quarterExxon Mobil quarterly income hits $14.8 billionDeripaska's aluminum company UC Rusal faces a Friday deadline to repay a $4.5 billion loan to 11 Western banks, which had threatened to seize Rusal's 25 percent stake in metals giant Norilsk Nickel that they hold as collateral.Another reported recipient of the VEB credits is Mikhail Fridman's Alfa Group. Vedomosti said VEB has loaned Alfa Group $2 billion to repay a debt to Deutsche Bank and prevent the loss of its 44 percent stake in VimpelCom, Russia's second-largest cellphone company, which it had pledged as collateral.The state loans to Rusal and Alfa Group would be among the first credits extended under a $50 billion government bailout plan that could shuffle Russia's business elite.VEB would not repay the companies' foreign loans directly and would demand the same stakes as collateral, Vedomosti said. The VEB loans are to be repaid by the end of 2009

Citigroup and Credit Suisse are so damaged by the financial crisis, it seems, that they've given up underwriting loans to their biggest clients

Citigroup and Credit Suisse are so damaged by the financial crisis, it seems, that they've given up underwriting loans to their biggest and most valuable corporate clients, including Nestle and Nokia. Instead, they're linking those loans to the companies' CDS spreads.

U.S. dollar has slid as investors grow more willing to take risks and buy stocks, easing demand for the currency as a safe haven.

U.S. dollar has slid as investors grow more willing to take risks and buy stocks, easing demand for the currency as a safe haven.The dollar skidded against the euro, which climbed Thursday to a high of $1.3296, while the pound surged to $1.6672, before slipping back slightly to $1.3076 and $1.6479 respectively. Both rates hit their highest since October 21 earlier in the session Thursday.Central banks and the International Monetary Fund have taken action over the past several days to ease credit and put more money into the world financial system, still in the throes of a severe credit crunch after the collapse of the market for bonds based on subprime mortgages. Stocks are up as a result.

Norges Bank, which cut interest rates by 50 basis points on Wednesday to 4.75 percent, has been injecting hefty doses of liquidity

Liquidity management has grabbed the lead role from interest rate policy internationally as central banks grapple with the global financial crisis, a Norwegian central banker said on Thursday.
Norges Bank, which cut interest rates by 50 basis points on Wednesday to 4.75 percent, has been injecting hefty doses of liquidity into the Norwegian financial system almost daily as interbank lending has dried up in the crisis.
Those money market operations are central to what Norges Bank says is a more active than usual policy approach that it will pursue for the time being to keep the system functioning.
"For a long time central banks have focused predominantly on their interest rate policy," Deputy Governor Jan Qvigstad said in the text of a speech to a conference in Geneva.
Considerably less attention has been paid to liquidity policy "which used to be carried out somewhere in the basement of the monetary policy temple, far away from the spotlight of the announcement of interest rate decisions", he said.
"This year, liquidity policy has moved into the spotlight and has taken over the lead role at the forefront of the monetary policy scene," Qvigstad said in a speech focused on the history of monetary policymaking.
The current situation, he said, also highlights the close interaction between price stability and financial stability and the focus of policymakers today on "crisis management".
"The challenge in the coming months and year is to pursue a dual approach consisting of short-term action and long-term solutions," he said.
"We must constantly be on the alert to put out fires when and where they emerge," he said, adding that central banks must also find the right long-term remedies in the form of new rules and systems to avoid repeating the same mistakes.

Barclays shunted hundreds of millions of dollars of toxic mortgage assets into two secretive investment vehicles according to a lawsuit

Barclays shunted hundreds of millions of dollars of toxic mortgage assets into two secretive investment vehicles that it had created itself. It did this just as the collapse of two Bear Stearns hedge funds last year alerted executives to the extent of the coming troubles in the credit markets, according to a lawsuit.Barclays must decide this week if it will try to persuade a US court to throw out the suit, which alleges that the bank defrauded investors in the two structured investment vehicles "SIV-lites". Both went bust just weeks after the transfers. The bank must file for dismissal by Friday or face a trial. Barclays, under its president Bob Diamond, is now expanding its US investment banking operations aggressively, and the case threatens to hurt its reputation and reveal details of how it responded to the emerging crisis in the credit markets last year. The transfers of toxic mortgage derivatives into its SIV-lites occurred as another division of the bank was facing big losses on its investment in the Bear Stearns funds, which Barclays is now alleging were used by that bank as a dumping ground for toxic assets of its own.
Across the world, lawyers have begun to pick through a vast network of inter-connected investment vehicles created during the credit market boom, through which increasingly complex mortgage derivatives were spread around the financial system. Civil lawyers and criminal investigators are looking for evidence deep in the contracts that defined these vehicles and set out the relationships between the banks that created them, the hedge funds that managed them and the investors that bet on them. In the latest case, Barclays is being sued by a French asset manager in a New York court over the collapse of two investment vehicles designed in London and managed out of the tax havens of Jersey and Guernsey.Oddo Asset Management says it lost its $50m (around £30m) investment in two SIV-lites, Mainsail and Golden Key, because of a scheme cooked up between Barclays and its partners.
The two vehicles purchased, at face value, several hundred million dollars of mortgage derivatives that had previously been sitting on Barclays' balance sheet and threatened to cause big losses for the UK company.SIV-lites were a risky investment vehicle that took on huge amounts of debt in order to buy a variety of complex mortgage derivatives. They exploded into view last year when they became unable to service their debts, and dozenscollapsed. Some of the banks that created them took them on to their own books; others let them fail.Barclays offered $2.5bn in credit lines to Golden Key and Mainsail in August 2007, but this was not enough to save them. Oddo claims that although both vehicles were ostensibly managed independently – Golden Key by Avendis (now in liquidation), Mainsail by Solent Capital Partners – Barclays manipulated them to get them to buy mortgage assets from itself, at what the bank knew were inflated prices."Barclays created these vehicles and hired investment advisers to manage the funds who were beholden to it," said Geoffrey Jarvis, Oddo's lawyer.

British Bankers’ Association, the industry group, said “commercial realities” made it “inevitable that some businesses will not survive” the recession

British Bankers’ Association, the industry group, said “commercial realities” made it “inevitable that some businesses will not survive” the recession. Gordon Brown, prime minister, has put support for small businesses at the centre of his banking rescue plan, requiring HBOS, Lloyds TSB and RBS to make lending available at 2007 levels in return for £37bn of taxpayer-funded equity.The Conservatives said Mr Brown’s pledge on lending was “meaningless”. “The rhetoric does not match the reality on the ground – it’s as deceitful as it is fanciful,” said Alan Duncan, shadow business secretary.“Lending to small businesses is drying up,” he said. “Even now, banks are cancelling overdraft facilities at two days’ notice and driving many good small firms to the wall.”Government officials said the talks were “constructive and positive” and not “read the riot act territory”. Ministers did not attempt to impose any constraints on the amounts or costs of their lending, said insiders.
“It was more a general discussion about intent. There were no detailed talks about areas like pricing,” said one. Another said the banks had told ministers they could make loans available but “not force the demand” from a shrinking sector.Lord Mandelson, who will chair the meeting with small business groups, said the talks would allow business and banks to resolve their differences. Angela Knight, chief executive of the BBA, said there were limits to the help banks could offer. “What we can’t do unfortunately is reverse a poor economic situation,” she said. “As talk turns to recession, it seems inevitable that some businesses will not survive, even with the best assistance that banks, government and voluntary agencies can give them.”

Half of Russian hedge funds could go out of business as the financial crisis sends investors fleeing and the stock market continues to fall

Half of Russian hedge funds could go out of business as the financial crisis sends investors fleeing and the stock market continues to fall, according to industry experts.Speaking at the Russia Alternative Investment Summit on Wednesday, Simon Fentham-Fletcher, head of fund of hedge funds at Raiffeisen Bank, said in a worst-case scenario, 50 percent of Russian hedge funds could close. The primary source of failure will be a lack of funding as performance deteriorates and investors redeem their money, he said."If they're not well-capitalised they can't look after themselves properly. It's expensive to run a hedge fund out of Russia and you can eat into your reserves very quickly," said Fentham-Fletcher, who is based in Moscow.
Christoph Kampitsch, head of alternative investments for Erste Bank, said there were about 75 hedge funds operating in Russia but by January next year this number may be closer to 25. Fentham-Fletcher said the vast majority of hedge funds in Russia were equity focused with only minimal hedging -- positions designed to reduce losses when markets fall -- and as a result had been badly affected by the decline in the stock market.

Iceland's central bank chief, recently estimated that foreign creditors would "unfortunately only get 5, 10, 15% of their claims"

German Banks Now Face Big Losses From Their Misadventures in Iceland WSJ
German banks have bled billions of euros in the U.S. subprime-mortgage debacle. Now they face another potentially big bill from a costly misadventure in Iceland.
The Icelandic bet is the latest illustration of how German banks -- including once-sleepy regional lenders -- ranged far and wide in recent years in search of yield to escape stiff competition and low profit margins on their home soil.By June of this year, before Iceland's spectacular financial meltdown, German financial institutions had lent $21.3 billion to Icelandic borrowers, according to the Bank for International Settlements. That was well over a quarter of all foreign lending in Iceland, and roughly five times as much as Britain, the next-largest creditor country.Iceland's three largest banks -- and the country's main debtors -- collapsed this month, plunging the country into crisis. Kaupthing Bank, Iceland's biggest, missed a coupon payment this week on 50 billion yen ($512 million) of bonds in Japan, heightening default concerns.Blaming fallout from the U.S. financial crisis, lawmakers in Berlin approved a €500 billion ($642 billion) rescue package for German banks on Oct. 17. Bayerische Landesbank, a state-owned regional lender, became the first German bank to raise its hand for help this week, requesting a €5.4 billion capital injection from the federal government.BayernLB, as the bank also is known, wrote down €2.6 billion in investments during the first half of the year, much of them tied to soured American subprime debt. But it also disclosed this week that it has €1.5 billion in credit exposure to Iceland, a large chunk of which it might also have to write down. ( more from Bloomberg BayernLB to Seek EU5.4 Billion From German Government )That lack of clarity highlights the lack of transparency in today's global financial markets -- and why it may take a long time for banks to fully resume lending to each other, even as authorities in Germany and other countries take aggressive steps to restore confidence. Germany's financial-services regulator said Thursday new accounting rules aimed at giving banks and insurers more leeway in valuing certain assets should boost earnings at the country's biggest banks by up to €1 billion in the third quarter.Now foreign bets that boosted profits are coming back to haunt many banks. Germany's five largest private-sector banks had €12.9 billion in markdowns on securities during the last half of 2007 and first half of 2008, according to Standard & Poor's. Many of the losses are tied to U.S. investments.But some of the country's state-owned regional lenders, or landesbanken, also have bloodied their noses after venturing abroad in search of juicier yields. Originally created to channel credit to their home states, some became aggressive players in international capital markets in recent years. They also had a lot of money to spend after raising money on the cheap before 2005, when government guarantees on their new debt issuance expired."There's not enough low-risk business that can feed all these banks," said Johannes Wassenberg, a European bank credit analyst in London with the ratings agency Moody's.Two small and relatively unknown German banks, SachsenLB and IKB Deutsche Industriebank AG, became the country's first two victims of the U.S. subprime crisis last year after stocking up on asset-backed securities and then failing to secure enough liquidity to stay afloat.
Deutsche Bank AG and Commerzbank AG, Germany's two largest banks by assets, declined to say how much exposure they have to Iceland. Landesbank Baden-Württemberg, or LBBW, the country's largest landesbank, also declined to say how much Iceland exposure it holds.HSH Nordbank, a smaller landesbank, said Thursday it had exposure of "low three-digit-million" euros to Iceland. Another landesbank, WestLB, said its exposure to Iceland was "less than €100 million." A third landesbank, Helaba, said its Iceland exposure was below €10 million.David Oddsson, Iceland's central bank chief, recently estimated that foreign creditors would "unfortunately only get 5, 10, 15% of their claims" on the country's three largest banks.German Banks Are On The Hook For $ 21.Billion Or 30% Percent Of Icelands Debt

Main Street Bank of Northville, Michigan bank failed two weeks ago, it had $98 in assets

Main Street Bank of Northville, Michigan. Billed as a "hometown bank", it opened for business in 2004.
When the bank failed two weeks ago, it had $98 in assets. This is especially sad, since the bank was founded by Northville residents active in community building efforts in their town.

crisis in Maine is tied directly to the collapse of Icelandic banks

Maine lobster industry is reeling from a collapse in demand, and subsequent collapse in the market prices, for the deep-sea crustacean. While supplies are adequate, Canadian seafood processors, who usually grab a significant portion of each day’s catch, have stopped ordering and buying lobsters because their credit lines with Icelandic banks have been frozen.The crisis in Maine is tied directly to the collapse of Icelandic banks which were key lenders to processors in Canada, according to Dane Somers, executive director of the Maine Lobster Promotion Council. Without ready credit from those banks, Canadian processors don’t have the cash to purchase lobster from Maine, Somers said.Lobsters were at $4.99/lb at Augusta Seafood earlier this week. Lobsters off the boat are barely fetching $2.0/lb at some ports. For the typical consumer, lobsters at $4.99/lb. is a tremendous difference from the $12-13 per pound rates earlier in the summer and should make lobster lovers rejoice. However, lobstermen and women can’t make any money at these low prices. Fewer and fewer boats will be departing for the lobster fisheries in the coming weeks; supplies will constrict quickly and prices will rise. The length of this crisis could determine how many lobster boats stay in the business.

Squeezed banks and investment firms are borrowing from the Fed because they can’t get money elsewhere.

Banks borrowed in record amounts from the Federal Reserve’s emergency lending facility over the past week, while investment banks drew loans at a slightly lower - but still brisk - pace, a fresh sign of the credit stresses bedeviling the country.
The Fed’s report, released Thursday, showed commercial banks averaged a record $105.8 billion in daily borrowing over the past week. That surpassed the old record - a daily average of $99.7 billion - from the prior week. On Wednesday alone, $107.5 billion was drawn, an all-time high.For the week ending Wednesday, investment firms drew $111.3 billion. That was down from $131 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley (MS) and Merrill Lynch.The Fed report also showed that over the last week $114.2 billion worth of loans were made to money market mutual funds - via banks - to help the funds, which have been under pressure as skittish investors demand withdrawals. The Fed announced a new effort earlier this week to help shore up mutual funds.

George Bush has defied the leaders of Europe collapse of the US lending markets has cascaded around the globe

George Bush has defied the leaders of Europe, instead calling a G20 summit in Washington for November 15 - the first of several meetings to consider how to clean up the financial mess that has its roots in the grossly inadequate regulation of the sub-prime lending market in the US. The collapse of the US lending markets has cascaded around the globe, leading to bank failures and stock market panics. And it is now bearing down on the real world economy, and threatening to plunge many nations into recession. Rudd, who refused to comment on his dealings with Bush for the preparation of this article, was not the only leader in the world to advocate broad global action on the crisis. But his success in convincing the US and the leaders of several other nations of his view signals that he has established his credentials as a genuine player on the global political stage. Perhaps more so than any of his predecessors, Rudd is bringing a new understanding to world politics - a keener sense of the subtle political changes in coming decades as economic and political power moves inexorably away from Europe and North America towards Asia.
Rudd had solicited Bush's telephone call, which came as the financial crisis reached frightening proportions. Trading on the Australian stock market that Friday saw share prices plunge by 8.3per cent.

Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits.

Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.
The economist's argument makes which of the following assumptions?
(A) Bank failures are caused when big borrowers default on loan repayments.
(B) A significant proportion of depositors maintain accounts at several different banks.
(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
(E) Potential depositors are able to determine which banks are secure against failure.

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool

Indian Prime Minister Manmohan Singh Friday forcefully asserted that a “massive failure” of regulatory and supervisory powers had led to the global economic turndown.”Clearly, there had been a massive failure of regulatory and supervisory powers. Speculators have had a free run for too long a period. International institutions like the International Monetary Fund (IMF) have also not covered themselves with glory,” he powerfully argued.
Manmohan Singh, who was specifically listed as the last speaker on the opening day of the conclave because he is seen as having mentored India’s economic reforms and many heads of state wanted to hear the Oxford educated economist on how he perceived the situation and if he could suggest a course correction, was at his eloquent best.
“There has been an unacceptable failure of effective multilateral supervision of major developed economies and in particular, of what has been going on in their financial markets,” the prime minister maintained.Many of those who heard Manmohan Singh said he made powerful presentation that was listened to with rapt attention.
While pointing out that India’s banking system was sound and capitalized, the prime minister said India could not remain totally unaffected by the economic tsunami.
“Our stock markets and the exchange rate of the rupee are under pressure due to capital outflow of foreign institutional investors. Sooner or later, the economy is bound to experience the pain,” he said.Pointing out that pragmatic solutions were the order of the day to bail out the world economy, Manmohan Singh said economies the world over should de-clog their credit markets and also suggested that it was time to actively deliberate on a global regulatory body.“The reform or reconstruction of financial system has to be a collective international effort since borders no longer confine financial institutions or can keep out financial turmoil,” he said as Asian stock markets continued to take a beating for another day.
This is the first summit of Asian leaders since bank failures, plunging stock markets and weakening currencies amplified fears that the world is headed for a protracted economic decline. “Given the growth in cross-border investment, trade and banking in the last three decades, the world must ponder over the need for a global monitoring authority to promote global supervision and cooperation in the increasingly integrated world we live in,” Manmohan Singh maintained.Identifying three reasons for the global financial crisis, the prime minister said it was primarily because of a regulatory and supervisory failure in developed countries, a failure of the risk management mechanism in private financial institutions and a failure of the market discipline mechanism.Quoting economist John Keynes for the second time on this trip, Manmohan Singh said: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done.”
From the standpoint of developing countries, international financial institutions, particularly the IMF and the International Bank for Reconstruction and Development (IBRD), Manmohan Singh said there was an immediate need to put in place exogenous facilities to provide additional assistance more quickly and in large amounts, with “less service conditionality and greater flexibility”.“Globalization without a global financial governance structure can lead to severe problems as has been seen in the recent turmoil,” the prime minister contended.
Many leaders here want China to play a major role in this unprecedented crisis as it is seen as a key to this global response because it has the world’s fastest-growing major economy and $1.9 trillion of currency reserves.The prime minister said as a counter cyclical device, increased infrastructure investments in developing countries, if backed by increased resource flows from multinational financial institutions such as the IBRD and the Regional Development Banks, could act as a powerful stabilizer.

U.S. bank shares suffered a rocky ride, closing mostly lower amid fears that losses from bad loans will soar because of a deep global recession.

U.S. bank shares suffered a rocky ride, closing mostly lower amid fears that losses from bad loans will soar because of a deep global recession.The Treasury Department plans to provide funds for 20 to 22 additional lenders as part of its next round of a $250 billion bank recapitalization program. It has already committed half that amount to nine of the nation's largest banks in exchange for preferred shares.Treasury plans to let banks announce the infusions on their own, rather than release a list of recipients all at once and risk scaring investors who might think banks left off failed to qualify for help, a person familiar with Treasury thinking said.

US Treasury adds $7.7bn to National City rescue

National City, one of the biggest mortgage lenders in the Midwest, was acquired in a rescue deal yesterday after months of speculation about whether the bank would survive at all. PNC Financial Services said that it was buying National City for $5.58 billion (£3.5 billion) in a cash-and-shares deal, valuing the bank at a 19 per cent discount to its closing price on Thursday. As a sweetener for the deal, PNC will also get $7.7 billion of capital from the US Treasury by selling a stake in the newly combined group to the American taxpayer. The capital injection forms part of new legislation that allows the US Treasury to acquire shares in troubled banks to help them to survive the credit crisis. On a conference call to Wall Street analysts yesterday, PNC said that it would have to write down $19.9billion of bad loans stagnating on National City's books. PNC refused to be drawn on whether it had been forced to buy National City by Henry Paulson, the US Treasury Secretary, as part of a move to secure the future of the lender. However, it sought to reassure shareholders by insisting that the new deal would create a larger and very well-capitalised bank. At the end of 2006, National City had retail deposits of $87 billion. The bank, which is based in Columbus, Ohio, is heavily exposed to the housing crash in the Midwestern state, which has been one of those worst-affected by the American residential property slump. Ohio has suffered so badly because of the concentration of low-income mortgage borrowers who defaulted on monthly repayments.
National City shareholders will receive 0.0392 shares of PNC common stock for each share of National City they own. However, the discounted valuation of the lender comes after sharp declines to its share price over the past few months. This time last year, shares in National City were trading at around $24, but they fell to a little more than $1 this month. Rumours that the lender was facing funding difficulties dogged the share price and led the bank's chief executive to issue public reassurances about the health of the group. It emerged yesterday that PNC had been mulling a takeover of National City for months. This week, National City posted a quarterly loss of $5.15 billion. The lender set aside $1.18 billion during the third quarter for loan-loss provisions, compared with provisions of $368 million during the same quarter a year earlier Mr Paulson has been very active in forcing troubled banks to merge with other, better-capitalised groups. He has already overseen the acquisition of Washington Mutual by JPMorgan Chase and this month orchestrated the distressed break-up of Wachovia to Wells Fargo, the West Coast-based lender, and to Citigroup, the world's biggest bank. The US Government is desperate for troubled banks to be taken over to avoid a withdrawal on the federal bank insurance fund, which guarantees up to $250,000 of Americans' savings. That fund is running dangerously low because around 15 banks have already gone bust in the United States this year alone.

BayernLB, has already appealed for help, and a second landesbank, HSH Nordbank, run by the states of Hamburg and Schleswig-Holstein,

BayernLB, has already appealed for help, and a second landesbank, HSH Nordbank, run by the states of Hamburg and Schleswig-Holstein, said it had decided in principle to apply.Landesbanks, which also have powerful non-government shareholders, have been among institutions hit hardest in the past year by investment in subprime US mortgages."The board of HSH Nordbank has decided in principle to to make use of the government measures," a spokesman, Rune Hoffmann, told DPA news agency in Hamburg. "But we are not under pressure of time." He said the company's prime objective was a resumption of interbank lending. He said HSH'sdiverse shareholders had not yet finally approved the move.A third landesbank, WestLB, was on the verge of applying for help, the newsweekly Der Spiegel said Saturday.It quoted the chief executive, Heinz Hilgert, saying WestLB would also seek a government takeover of its toxic securities.The magazine said government officials were meanwhile debating how to force recapitalization on Germany's commercial banks, which have resisted taking up the government offer.Commercial banks reportedly fear a loss of credibility if they seek state aid. Their senior executives would also face a pay cap as a condition for aid.Quoting sources, Der Spiegel said German Finance Minister Peer Steinbrueck planned to summon commercial bank chiefs to Berlin in two weeks to press them to jointly apply for help.A fresh embarrassment awaited the state of Bavaria over its landesbank, BayernLB, which needs 6.4 billion euros ($8 billion) in new funds, Spiegel added.It said Bavaria and its trustee savings banks had hoped for relief from a promise earlier in the year to guarantee 4.8 billion euros of the sum, and did not realize the week-old federal aid package ruled this out.The Bavarian government quarrelled this week with the savings banks, which as joint owners of BayernLB successfully resisted a government bid to sack BayernLB chief executive Michael Kemmer.

IMF has warned that more European banks face the risk of going bankrupt

IMF has warned that more European banks face the risk of going bankrupt due to the continuing credit crisis and falling property prices. The property prices in most of the European countries are continuing to slide , and there are no signs of they returning back to positive growth rates in the near future. Hence, IMF has warned that there could be more bank failures in the near future.

Short sharp recession? Not on the evidence. We are now in the grip of a global deleveraging which will be severe, unsparing and prolonged.

Short sharp recession? Not on the evidence. We are now in the grip of a global deleveraging which will be severe, unsparing and prolonged. Interest rate cuts may alleviate some of the pain. The reason that the UK economy is especially vulnerable is, first, that it entered this crisis with high levels of both household and government borrowing, and second because of the structure of the economy itself. Financial services, which formed the fastest-growing sector of the economy overall in recent years, is facing a severe contraction. Retail, business services, property, construction and housebuilding are all now being hit hard. That leaves manufacturing, but we have little of that left after the two previous recessions. We will now see rebalancing – with a vengeance.

Hungary has not had a mortgage crisis yet, but the country’s public finances are a mess.

Hungary has not had a mortgage crisis yet, but the country’s public finances are a mess. Since the accession to the European Union the country had no chance to enter the ERM-II and start the adoption of the euro, so its very open, free-trading economy has to do with the forint. The government had excessive deficits since 2002, crowding out everybody else from the credit market and pushing up interest rates a few percentage points above the euro rate. The Hungarian families, hoping to pay back some time in euros, started to take out their mortgages in euros and Swiss francs, which just suited their banks fine, who happened to have Western European owners, and could easily find loanable funds abroad than in cash-strapped Hungary. Everybody had to sign a paper that he or she understood the risks involved: if the forint stumbles, mortage rates will be high.

cost of borrowing in dollars overnight in London rose as the increased likelihood of a global recession spurred banks to hoard cash

The cost of borrowing in dollars overnight in London rose as the increased likelihood of a global recession spurred banks to hoard cash even after policy makers pumped record amounts of the U.S. currency into financial markets. The London interbank offered rate, or Libor, that banks charge for such loans climbed 7 basis points to 1.28 percent today, British Bankers' Association said. It gained for the first time in 10 days yesterday. The comparable rate for U.K. pounds jumped 19 basis points to 4.75 percent. The Libor-OIS spread, a measure of cash scarcity, widened by the most since Oct. 10.