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Monetary policy tools and its uses

The Federal Open Market Committee (FOMC) , in its monetary policy meeting held in the month of July had a discussion of implementing a number of monetary policy tools to reduce the concerns regarding the economic outlook for the United States. Previously the FOMC had taken a set of primitive measures, a numerous emergency measures per say, but the committee members were wanting to know more about exploring more tool and enable further easing on the entire process. The banks all around the world including the FED adapted a number of growing tools to achieve specific targets for a few economic metrics, in the decade following the financial crisis of 2008-09. Issues such as inflation, unemployment and economic growth were tackled with the use of these new tools. Policy makers around the world have set out to save their economies with variety of approaches. The questions are arising as to, if the monetary policy tools are being used while making policies or not, having the tools at their disposal are the existing tools enough to contain the economic fallout but not actually preventing the fast possible recovery.

For a start, by March 15, it lowered its rate from 1.5 to 0-0.25 percent and also relaunched quantitative easing, stating that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities. After The Central banks slashing their benchmark interest rates to their respective lower bounds, the FED also introduced a certain of measures.

  • Lowering the rate at which it lends to banks via its discount window from 1.75 to 0.25 percent, thus aiding the liquidity and stability of the banking system;
  • Re-launching its Term Asset-Backed Securities Loan Facility (TALF), which proved successful during the financial crisis. According to the Fed, this facility is “intended to help meet the credit needs of consumers and small businesses by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally.” The TALF has pledged up to $100 billion in new credit;
  • Expanding lending to securities firms via its Primary Dealer Credit Facility (PDCF), whereby the Fed provides low-interest loans to select financial institutions in return for collateral such as equities and debt securities, with the aim of supporting liquidity in credit markets;
  • Relaxing banking regulations pertaining to capital and liquidity buffers as a way to encourage lending by banks;
  • Introducing the Primary Market Corporate Credit Facility (PMCCF) and the new Secondary Market Corporate Credit Facility (SMCCF) to enable the Fed to lend directly to corporations. The PMCCF allows firms to issue new bonds and purchase loans from the Fed as well as delay interest and principal payments for at least six months; while the SMCFF allows the Fed to purchase existing corporate bonds and corporate-bond-focused ETFs (exchange-traded funds);
  • Initiating the Main Street Lending Program (Program) to provide support for small and medium-sized businesses as well as non-profit organizations. Three lending facilities—the Main Street New Loan Facility (MSNLF), Main Street Expanded Loan Facility (MSELF) and Main Street Priority Loan Facility (MSPLF)—enable the Fed to fund up to $600 billion in five-year loans;
  • Lending to state and local governments through the Municipal Liquidity Facility (MLF);
  • Supporting financial market liquidity through:
  • The Money Market Mutual Fund Liquidity Facility (MMLF), which provides banks with loans that are collateralized from prime money-market funds;
  • The Commercial Paper Funding Facility (CPFF) as a way for the Fed to fund corporations (the ones that issue commercial paper);
  • Expanding its repo market operations to fund money markets;
  • Boosting liquidity for municipal bonds by expanding the collateral eligibility of the MMLF and CPFF.

Given the unpredictable nature of this pandemic, therefore, it would seem wise not to rule out adopting more measures to inspire a resurgence in the US economy.

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Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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