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What is the negative deposit rate introduced by the ECB?

June 5, 2014

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The European Central Bank on Thursday June 5th, 2014 announced a new stimulus package. One policy that was introduced was the negative deposit rate. But what is it?

Basically to define this term lets begin with a positive deposit rate, a positive deposit rate  a policy tool whereby banks can park their reserves with central banks and in return pick up a small amount of interest. It can be compared to a savings account, thus if banks can earn a healthy return depositing reserves at a central bank, they are likely to do so. But if they can’t, they’re likely to move their cash elsewhere. One option: Lending to households and businesses, which would benefit the broader economy. So by making the deposit rate negative, the ECB is trying persuade  these risk-averse banks from locking up their cash. Thus this will help stimulus Europe’s economy because of this monetary policy there will be more lending occurring to consumers especially households and business which will help battle against the low inflation rate in Europe.

 

Source: Marketwatch

Credit Suisse misses forecast sheds asset and employees

April 16, 2014

Credit Suisse Profit Misses Forecasts

Credit-Suisse

Summary:

  • According to NY Times Credit Suisse, Switzerland’s second largest bank profit falls -34% due to its diminished interest rates unit and a weak performance in emerging markets contributed to a 13% year-on-year decline in net revenue at the investment bank.
  • Which is causing the bank to wind down on their businesses and letting them go because they’re too expensive to maintain. Additionally this also means employees are being let down as the company seeks to slim down operation.
  • Credit Suisse  is also in the middle of a legal issue with the US Justice Department because to  track down the identities of American clients who used accounts at the bank to evade taxes.
  • Credit Suisse will now focus more on their private banking and wealth management businesses because it attracted 13.7 billion francs new assets during the quarter

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Volcker Rule passes, but what is it? and How does it affect banks?

December 14, 2013

Volcker Rule Ushers in Era of Increased Oversight of Trades

  • Volcker Rule was just passed by U.S. regulators to prevent another bank financial crisis.
  • JP Morgan, Goldman Sachs and other industry allies support this Bill.
  • The idea of this Bill is to stop Prop trading, prop trading is when companies use their own money to invest in the stock market rather than their customers, which is very risky as JP Morgan lost $6.2 Billion of their own money in the London Whale loss.
  • The Volcker rule bans banks from trading to profit for their own accounts while allowing them to continue making markets for clients.
  • The main goal of this rule is to limit risky trades which is what Prop trading mostly is, due to this new bill banks must now provide qualitative analysis on future trades before making them to reduce risk.
  • The Fed gave banks a delay until July 21, 2015, to comply with the rule. Beginning June 30, 2014, banks with $50 billion in consolidated assets and liabilities must report quantitative information about their trading.

U.S. unemployment drops to 7.2% How can unemployment drop when the economy isn’t adding enough jobs? Because…

October 22, 2013

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Labor Force Statistics from the Current Population Survey

U.S. unemployment dropped to 7.2% today. The month of September added 144,00 jobs when analysts expected 180,000. How can unemployment drop when the economy isn’t adding enough jobs? This is due to because there’s low levels of labor participation rate. Labor Participation is people who are actively searching for jobs in the market, when job seekers get discouraged they no longer look for work, they are not participating in the market. Those who have not looked for work within the past four weeks are not only no longer counted among the unemployed, they are also removed from the labor force. As you can see Labor Participation has dropped to 63.2 and thus job seekers are not motivated to find jobs, thus dropped the unemployment rate.

Obama administration will bail out Detroit from Bankruptcy

October 6, 2013

 

Bankrupt Detroit to get $300m from US government and private business

Headquarters_of_GM_in_Detroit

 

Summary:

  • The US government and and private businesses plans to pump $300m into Detroit, two months after the city declared bankruptcy, while the city owes around $18billion.
  • The funds will be used for community redevelopment, tearing down abandoned houses and redeveloping land, hiring more police and firemen and repairing transport and lighting.