Nach der Abschaffung der uptick-rule in USA ist es für institutionelle Leerverkäufer noch einfacher geworden, die Indices auf und ab zu scheuchen und nach Wahl shortqueezes auszulösen. Zu den gesetzlichen Erleichterung der Marktmanipulation durch Institutionelle kommen noch die Gefahren computergesteuerten Handelns größerer Häuser. Davon hat Kostolany schon gesprochen, als die technischen Möglichkeiten noch weniger ausgefeilt waren.
Der folgende Artikel aus dem Forbes Magazin läßt ahnen, wie chancenlos Kleinanleger im Aktienmarkt geworden sind.
In den globalisierten Aktienmärkten scheinen die Risiken für den "breiten Markt" unverhältnismäßig weit höher zu liegen, als die möglichen Chancen.
: Australien: trader fined $10,000 in short-selling
Share trader fined $10,000 in short-selling test case Ruth Williams December 13, 2008
THE Australian Securities and Investments Commission has secured a victory in its short-selling test case against Northcote man Giovanni Spagnolo.
He pleaded guilty in the Melbourne Magistrates Court to five charges of short-selling and was sentenced, without conviction, and fined $10,000.
Spagnolo was the second person to be charged with short-selling in Australia, and his case was expected to serve as a test of the short-selling provisions of the Corporations Act.
The commission claimed Spagnolo sold shares and options that he did not own between May 28 and October 24, 2007, in companies including Rimfire Pacific Mining and QR Sciences Holdings. It is alleged that he applied for shares and options in capital raisings by the companies, and agreed to sell the shares on the ASX before they were issued.
"In each instance, there was no certainty that those shares would be issued by the date the relevant share sales were due to settle," ASIC's statement said.
Federal Parliament last week passed legislation banning naked short-selling and requiring greater exposure of covered short-selling.
The Corporations Amendment (Short Selling) Bill 2008 will become law early next year.
: Germany, France, Belgium Extend Bank-Shorting Bans
Dec. 19 (Bloomberg) -- Germany, France and Belgium extended protection for banks and insurers against short-selling, part of European efforts to prop up shares during the financial crisis.
Germany?s extension lasts until March 31 while France will review its ban on uncovered short sales in February, the countries said in separate statements. Belgium?s prohibition on so-called naked shorting of certain companies continues until March 20.
President-elect Obama: ?regulators who were assigned to oversee Wall Street dropped the ball.?
Excerpt from today?s announcement:
?In the last few days, the alleged scandal at Madoff Investment Securities has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets. Charities that invested in Madoff could end up losing savings on which millions depend ? a massive fraud that was made possible in part because the regulators who were assigned to oversee Wall Street dropped the ball. And if the financial crisis has taught us anything, it?s that this failure of oversight and accountability doesn?t just harm the individuals involved, it has the potential to devastate our entire economy. That?s a failure we cannot afford.
?Financial regulatory reform will be one of the top legislative priorities of my Administration, and as a symbol of how important I view this reform, I?m announcing these appointments months earlier than previous administrations have. These individuals will help put in place new, common-sense rules of the road that will protect investors, consumers, and our entire economy from fraud and manipulation by an irresponsible few. These rules will reward the industriousness and entrepreneurial spirit that?s always been the engine of our prosperity, and crack down on the culture of greed and scheming that has led us to this day of reckoning. Instead of allowing interests to put their thumbs on the economic scales and CEOs run off with excessive golden parachutes, we?ll ensure openness, accountability, and transparency in our markets so that people can trust the value of the financial product they?re buying. And instead of appointing people with disdain for regulation, I will ensure that our regulatory agencies are led by individuals who are ready and willing to enforce the law.?
Interessant, der Hintergrund so mancher Analysierer und Schreiberlinge
Henry Blodget who, along with Mary Meeker, was one of the investment analysts heavily behind the dot-com boom - and he paid dearly when it went belly-up. The end result? He lost his job at Merrill Lynch in 2001 and in 2003 was was charged with securities fraud by the SEC. He?s currently banned from the securities industry for life, which leads us to his career as a writer at Slate, where he basically spends his time slamming the securities industry."
zur globalen Reguloerung "Wie entkommen wir der Depressionsfalle?"
"Die vernetzte Weltwirtschaft kann aber wegen der Depressionsgefahr nicht noch Jahre auf die Gesundung der Finanzmärkte warten! Deshalb erscheint es mir zweckmäßig, dass die G-20-Staaten einige besonders einschneidende Schritte vorziehen. Dafür kommen per Gesetz oder Verordnung infrage:
1. Alle privaten Finanzinstitute (inklusive Investmentbanken, Hypothekenbanken, Investment- und Pensionsfonds, Hedgefonds, Equity Trusts, Versicherungsgesellschaften et cetera.) und alle marktgängigen Finanzinstrumente werden derselben Banken- und Finanzaufsicht unterstellt.
2. Die Banken- und Finanzaufsicht legt für alle Branchen der privaten Finanzinstitute Eigenkapital-Minima fest.
3. Den Finanzinstituten werden jegliche Geschäfte außerhalb der eigenen Bilanz (und der Gewinn-und-Verlust-Rechnung) verboten und unter Strafe gestellt.
4. Allen Finanzinstituten wird bei Strafe der Handel mit solchen Finanzderivaten und -zertifikaten verboten, die nicht an einer anerkannten Wertpapierbörse zugelassen und notiert sind.
5. Es wird allen Finanzinstituten bei Strafe verboten, per zukünftigen Termin Wertpapiere und Finanzinstrumente zu verkaufen, die sie zur Zeit des Verkaufes nicht zu eigen besitzen. Damit wird die Spekulation auf fallende Kurse (»Shortselling«) erschwert."
"Die Erklärung für den Crash von 2008, die ich hier anbiete, wirft einige wichtige Fragen auf. Was wäre passiert, wenn es die Uptick-Regel noch gegeben hätte, ungedeckte Leerverkäufe aber (also solche, bei denen der Verkäufer sich das von ihm verkaufte Papier erst noch ausleihen muss) ebenso verboten gewesen wären wie Spekulationen mit CDS?
Der Bankrott von Lehman Brothers hätte sich vielleicht verhindern lassen. Aber was wäre mit der Superblase passiert? Man kann darüber nur spekulieren. Meine Vermutung ist, dass sie langsam die Luft verloren hätte - mit weniger katastrophalen Folgen -, aber dass die Nachwirkungen länger angedauert hätten. Das Ganze hätte mehr der Erfahrung Japans geähnelt als dem, was jetzt passiert.
Was ist die richtige Rolle von Leerverkäufen? Leerverkäufe geben den Märkten ohne Zweifel mehr Tiefe und Kontinuität und machen sie widerstandsfähiger.
Aber Leerverkäufe haben auch ihre Risiken. Bear Raids können selbstbestätigend werden und sollten unter Kontrolle gehalten werden.
Wäre die Effizienzmarkthypothese richtig, wäre das schon a priori ein Grund, keinerlei Beschränkungen zu verhängen. So, wie die Dinge liegen, sind aber sowohl die Uptick-Regel wie auch das Verbot von ungedeckten "nackten" Leerverkäufen nützliche pragmatische Maßnahmen, die ohne eindeutige theoretische Rechtfertigung gut zu funktionieren scheinen.
Wie ist es mit den CDS? In dieser Frage bin ich radikaler als die meisten Leute. Die vorherrschende Meinung ist, dass CDS an regulierten Börsen gehandelt werden sollten. Ich bin der Ansicht, dass sie toxisch sind und nur auf Rezept verwendet werden sollten. Man könnte ihren Einsatz zulassen, um tatsächliche Anleihen zu versichern, aber - angesichts ihres asymmetrischen Charakters - nicht, um gegen Länder oder Unternehmen zu spekulieren.
CDS sind aber nicht das einzige synthetische Finanzinstrument, das sich als toxisch erwiesen hat. Dasselbe gilt für das Zerlegen und Zusammenwürfeln von Collateralized Debt Obligations (CDOs) und für jene Portfolioversicherungskontrakte, die den Börsencrash von 1987 verursachten - um hier nur zwei zu nennen, die eine Menge Schaden angerichtet haben.
Die Emission von Aktien wird durch die US-Wertpapieraufsicht genau reguliert, warum also nicht auch die Emission von Derivaten und anderen synthetischen Instrumenten? Die Rolle der Reflexivität und der Asymmetrien, die ich aufgezeigt habe, sollte Anlass sein, die Hypothese von effizienten Märkten zu verwerfen und den Aufsichtsrahmen gründlich neu zu bewerten. "
Draft House Bill Would Ban Naked CDS Trading Law360, New York (January 29, 2009) -- A draft bill circulating through the U.S. House Agricultural Committee would make engaging in a naked trade of credit default swaps a violation of the Commodity Exchange Act and would require nearly all over-the-counter CDS trades to be settled through a registered clearing institution.
The Derivatives Markets Transparency and Accountability Act of 2009 also calls for the U.S. Commodity Futures Trading Commission to set ?appropriate position limits for all commodities,?...
AP Congressional leaders propose new financial reins Friday January 30, 5:07 pm ET By Marcy Gordon, AP Business Writer Congressional leaders proposing new oversight for high-flying financial markets
WASHINGTON (AP) -- Congressional leaders are proposing new government oversight over Wild West corners of the financial markets that operate largely in secrecy and have been pinned as potential threats to stability. Fresh targets are hedge funds and the $60 trillion global market in credit default swaps -- a form of insurance against loan defaults.
ADVERTISEMENT But powerful financial interests, representing industries battered by the crisis though still deep-pocketed, already are pushing back against new restrictions.
New proposals for financial regulation are coming from all corners, including the Obama administration, lawmakers, state securities regulators and the congressionally chartered panel overseeing the government's $700 billion bailout program.
Their efforts have become more urgent as the crisis has plunged economies worldwide into recession. Proponents in the new Congress see enhanced prospects for stricter regulation provided by the changed environment and Democrat Barack Obama in the White House. What could emerge from Capitol Hill are the most sweeping changes to the financial regulation system since the 1930s.
"We look forward to being a part of that conversation," said Roger Hollingsworth, executive vice president and managing director for government relations at the Managed Funds Association, the hedge fund industry's trade and lobbying group. "We will engage" on those issues, he said Friday.
The one-year prohibition on lobbying for Richard Baker, the Managed Funds Association's president and CEO, expires next week. Baker, a Louisiana Republican, was a longtime senior member of the House Financial Services Committee.
On Thursday, Sens. Carl Levin, D-Mich., and Charles Grassley, R-Iowa, formally proposed legislation to stiffen regulation of hedge funds, vast pools of capital holding an estimated $2.5 trillion in assets that operate mostly outside of government supervision. As the market crisis deepened in recent months, hedge fund selling was widely cited as one of the reasons for the increased volatility that pounded stocks and bonds.
The senators' bill would put hedge funds under the supervision of the Securities and Exchange Commission -- an authority the agency sought several years ago. It was stymied in that effort by a federal appeals court in 2006.
"There wasn't much of an appetite for this sort of legislation before the financial crisis," Grassley, who proposed a similar measure two years ago that went nowhere, said in a statement. "I hope attitudes have changed and that Congress takes up this important legislation without delay."
Hedge funds suffered huge losses last year, notably from investments in securities backed by subprime mortgages.
In the House, the chairman of the Agriculture Committee, Rep. Collin Peterson, D-Minn., has circulated a draft bill with a provision that would prohibit trading in credit default swaps in cases where investors don't own the underlying bonds.
Credit default swaps, traded in a $60 trillion global market, have been partly blamed for stoking the financial and credit crises.
The swaps are commonly used contracts to insure against the default of financial instruments like bonds and corporate debt. But they also are bought and sold as bets against bond defaults.
They played a prominent role in the credit crisis that brought the downfall of Lehman Brothers Holdings Inc., a government rescue plan for giant insurer American International Group Inc., and Merrill Lynch & Co. selling itself to Bank of America Corp.
The banning of so-called "naked" credit default swaps under Peterson's draft proposal would effectively gut the market for the swaps and hamper efforts to restore the credit markets, the industry's trade group said Thursday.
"This bill would increase the cost and reduce the availability of essential risk-management tools while failing to address the true causes of the credit crisis," Eraj Shirvani, the International Swaps and Derivatives Association's chairman and an executive at investment bank Credit Suisse, said in a statement.
About 800 banks and other companies from around the world -- including Bank of America, Citigroup Inc., JPMorgan Chase & Co., Agricultural Bank of China, Abu Dhabi Commercial Bank and State Bank of India -- are members of ISDA.
It's one of many industry groups that have talked with Peterson and his staff about his proposal, a congressional aide said.
The Managed Funds Association spent $520,000 lobbying on various issues in the fourth quarter, according to a disclosure form filed earlier this month with the House clerk's office. ISDA spent $432,000 in the same period.
gegen spekulative naked shortselling - Manipulationen im Kreditmarkt geplant.
"Starting Tuesday afternoon, the House Committee on Agriculture, led by Chairman Collin Peterson, D-Minn., plans two days of hearings in Washington, D.C. to discuss legislation that would impose severe curbs on credit derivatives. "
Interessant, daß ausgerechnet ein Analyst der BAC versucht, dagegen mobil zu machen, obgleich es zunächst nur um hearings geht.
: Seit 2000 versuchte Markopolos die SEC über Madoff
und seine Machenschaften zu informieren. Seine Zeugenaussage, schriftlich gefaßt, ist erschütternd und fast unglaublich und sagt viel aus über die Folgen der Deregulierung der Märkte. Viele müssen von den Vorgängen gewußt haben. Es gibt Gerüchte, daß z.B. Goldman Sachs aufgrund seines Informationsstandes Geschäfte mit Bernard Madoff strikt abgelehnt hat. Es wird ebenfalls vermutet, daß Poulsonson aufgrund seiner Tätigkeit ebenfalls über Informationen über Madoffs Vorgehen verfügte. Eingeschritten ist niemand.
Für die, die mehr an results als an resents interessiert sind: Ab ca. Seite 39 gibt es Vorschläge zur Neuordnung der SEC. Mögen wenigstens die Verantwortlichen Politiker interessiert sein.
Witness to describe SEC's 'abject failure' in Madoff case By Bill Swindell CongressDaily February 4, 2009
A whistleblower is slated to testify Wednesday about an "abject failure" at the SEC that prevented investigators from uncovering Bernard Madoff's alleged $50 billion Ponzi scheme, claiming the arrogance and ignorance of the head of its New York office helped derail any probe.
Harry Markopolos, a Boston-based investor turned fraud investigator, is slated to tell House Financial Services Committee members of his eight-year quest to get the SEC to investigate Madoff.
Prosecutors allege the former NASDAQ chairman set up a phony set of records to cover up billions in fraud perpetrated on his investors, ranging from European royalty to actor Kevin Bacon.
In 24 pages of prepared testimony obtained by CongressDaily, Markopolos spells out his frustration of trying to alert SEC officials that Madoff's returns were not mathematically possible and that his investment strategies would have trouble even breaking even -- once fees and expenses were included.
He initially contacted SEC's Boston office. But Markopolos got little traction, noting "that financial illiteracy among the SEC's securities lawyers was pretty much universal, with few exceptions."
He persevered over the next few years and will testify he finally found a receptive audience in 2005 with Mike Garrity, branch chief of the SEC's Boston office.
Garrity sent the case to the SEC's New York office, where he put Markopolos in contact with its chief, Meaghan Cheung.
Markopolos slams Cheung in his testimony, indicating that she "never grasped any concepts in my report, nor was she ambitious enough or courteous enough to ask questions of me."
He will testify that Cheung dismissed him by noting she handled the criminal case against Adelphia Communications and convictions of its top executives.
"Ms. Cheung never expressed even the slightest interest in asking me questions; she told me that she had my report and that if they needed more information they would call me," he writes.
Markopolos then reached out to Wall Street Journal reporter John Wilke. He notes that while Wilke was eager to investigate, the Journal's editors apparently never gave him their approval to start reporting.
Markopolos thought he had his biggest breakthrough in 2006 after talking to a Chicago Board Options Exchange official and learning its traders suspected Madoff was a fraud.
He noted the official, Matt Moran, received permission to talk to the SEC and the Journal, but neither organization followed any leads he provided.
Markopolos adds that he and some members of his informal investigative team felt threatened and thought Madoff could stifle them if their efforts would be discovered.
He said they did not go to the FBI because they felt they would not be taken seriously because of the SEC's lack of interest and their decision not to contact the Financial Industry Regulatory Authority, an independent watchdog group, because Madoff had been chairman of its predecessor organization. +++
"They?re actions that need to be taken, ... , if ordinary investors are ever again to trust Wall Street.
Reinstate the uptick rule, which required a trader to wait for a stock?s price to ?tick up? before he could sell it short. By forcing traders to wait, a particular company was protected from relentless sell-offs that could drive the share price to zero. Bear raiders have been taking advantage of the rule?s absence ? Cox repealed it in 2005 ? to hammer down whole groups of stocks.
Crack down on naked short selling, the practice of selling short a stock without first borrowing it. The lack of an uptick rule combined with blatant naked short selling has allowed traders to drive whole companies, such as Lehman Brothers, right out of existence.
Eliminate ultra-short exchange-traded funds. Not only do these ETFs allow traders to sidestep margins rules ? by turning a $1 investment into $2 ? but they?re also another way for bear raiders to attack an entire sector of stocks. It?s market manipulation, pure and simple, Cramer said. Besides, these funds have been costing their investors a lot of money. Here?s why.
And lastly, enforcement needs to be ramped up. We can?t afford to have another Bernie Madoff scandal."
: Rep. C. Munger: How can we restore confidence?
So beschreibt er die Situation: Mit Derivate-Wetten die Konkurrenz u.a. in den Ruin treiben
>>There was also great excess in highly leveraged speculation of all kinds. Perhaps real estate speculation did the most damage. But the new trading in derivative contracts involving corporate bonds took the prize. This system, in which completely unrelated entities bet trillions with virtually no regulation, created two things: a gambling facility that mimicked the 1920s "bucket shops" wherein bookie-customer types could bet on security prices, instead of horse races, with almost no one owning any securities, and, second, a large group of entities that had an intense desire that certain companies should fail.>>
Merkwürdiges Dokument. Weder wird Bernankes noch irgendein anderer Name erwähnt. "And a few Fed officials -- none are identified -- feared..." Und das von den Fed-Governors, die doch sonst jede Gelegeheit suchten, sich mit persönlichen Aussagen und Kommentaren zu melden.
Klingt so, als wolle sich "die Fed" schon mal verabschieden, aus dem off, und mit ein paar düsteren Prophezeihungen- und jeder weiß eigentlich, daß die Fed nicht federal und schon gar nicht reserve ist. "Tschüß dann, machts mal gut wenn es so schlecht wird, und bringt bitte nicht unsere guten republikanischen Namen mit diesem Wust von Krisen in Verbindung. Zwar haben wir acht Jahre lang im Keller des Hauses gezündelt und zündeln lassen, aber seit einem Monat trägt ein anderer dafür die Verantwortung, daß es brennt. Beim Löschen des Hauses können wir leider nicht helfen, denn mit solch negativen Ereignissen möchten wir, wie gesagt, unsere guten Namen nicht in Zusammenhang gebracht sehen. Ihr wolltet ja unbedingt Obama als Depressions-Präsi haben. Lest mal unser Papier, dann wißt ihr in etwa, was euch in seiner Amtszeit erwartet.
Wir haben hier keine Aktien mehr drin, die letzten verkaufen wir demnächst. Vielleicht melden wir uns ja in 4 Jahren mal wieder! So long!"
Kristin Gulbransen Norges Bank Conference on Banking Crisis Resolution - Theory and Policy, Oslo 16 June 2005 Introduction The Norwegian Banking Crisis affected almost 2/3 of the banking system and led to the nationalization of our three largest banks. At the time, it was the first systemic crisis in an industrialized country since the 1930s. This also explains why the crisis caught most policymakers off-guard.
How could this happen in a well organized, mature economy? How was the crisis resolved? And, what can we learn from the crisis resolution methods adopted in Norway? These are the questions I will address today.
Some may argue that it is difficult to derive a "crisis resolution blueprint" from a banking crisis that was so much influenced by the deregulation of that time. The next crises, if any, will no doubt have other causes. But the resolution methods we adopted may still be relevant for others.
In order to understand how the Norwegian banking crisis could take on systemic proportions, let me first fill you in on the background and present some of the special features of the crisis. Then I will review the resolution methods used, and finally discuss the relevance of the Norwegian experience for crisis resolution today. Special features of the Norwegian banking crisis The Norwegian banking crisis was a classic boom-bust crisis with some special, national features:
* Deregulation and liberalization paved the way for the boom * Macroeconomic policies were largely pro-cyclical * Lending growth became exceptionally strong * Prudential capital regulations were relaxed [and] * Supervision efforts were reduced
This may sound like "a deadly cocktail" [which in fact it turned out to be], so let me comment briefly on each feature: Deregulation The banking crisis had its roots back in the late 1970s. Tight regulations of credit and interest rates were in place. High inflation and favorable tax treatment of nominal interest expenses led to highly negative real interest rates in the early 80s. Demand for credit increased steeply, and credit regulations became less effective due to a mushrooming grey market for credit and loans from abroad. This - together with the international trend of liberalization at the time - motivated the deregulation process. So, in early 1984 - the government started a process of swift removal of credit regulations. Monetary and fiscal policies Macroeconomic policies became largely pro-cyclical during the 80s. The economy started to grow very strongly in 1983 - following the international downturn in the early 80s. Private consumption grew particularly fast during the mid-80s, with real growth peaking at ten percent in 1985! The government was not aware of this at the time; and estimates of consumption growth were much lower. Despite strong growth, there was also political pressure to keep interest rates low, and attempts to tighten fiscal policy were unsuccessful. Lending growth The removal of the credit regulations - while keeping interest rates at a low level - triggered an exceptionally strong growth in bank lending. Collateral was not a problem, as prices soared in the newly deregulated secondary market for housing. The new loans were to a great extent provided by the three largest banks. Their balance sheets increased by 150 percent in just three years. Prudential capital regulation The sharp increase in lending was accompanied by an erosion of banks' capital base. The quality of capital was eroded, as the authorities allowed the banks to issue large amounts of perpetual subordinated debt; debt that was accepted as ordinary equity, but in fact was of little use when the crisis hit [as it could only be called upon if the banks had been closed]. The capital buffer was weakened further by inadequate provisioning. Supervision While banks were having a lending bonanza, on-site inspections decreased sharply - from 57 in 1980 to 8 in 1987! There had long been plans to establish a single supervisory agency, and the new agency was formally established in March, 1986 and became operational in 1987. As a result, supervisors' attention was focused on building the new agency, rather than checking on the banks' risk profiles during the on-going lending boom. The banking crisis With the benefit of hindsight, the banking crisis was an "accident waiting to happen". And sure enough, when the economy was hit by a strong negative shock and a cyclical downturn, loan losses and non-performing loans soared, wiping out the capital of many banks.
The negative shock came in the form of a sharp fall in oil prices in the beginning of 1986. This led to a run on the Norwegian krone and a devaluation of the currency. Fiscal policy was then tightened sharply and interest rates were raised to restore credibility. Subsequently, the private sector consolidated its financial position through debt repayments, resulting in the deepest recession in Norway since World War II.
The sharp correction in the real economy led to large loan losses in the banking sector. Some banks experienced solvency problems already in 1987 and the problems increased as the recession deepened. Several smaller banks were merged with larger, still solvent banks in this period. The banks' guarantee funds issued guarantees or infused capital to facilitate these mergers. Thus, until late 1990, the crisis resolution was mainly financed by the banking sector and the banks' guarantee funds. The resolution of the Norwegian banking crisis By the end of 1990, key policy makers started to worry about the crisis becoming systemic. It was essential to maintain confidence in the financial sector and avoid a major credit crunch when the economy was already in a recession. The capital in the banks' guarantee funds was about to run out and it was apparent that the larger banks might also face problems. The Ministry of Finance thus proposed - in January 1991 - the establishment of a new guarantee fund - the Government Bank Insurance Fund and put 5 billion kroner in it [equivalent to around 0.6% of GDP].
The authorities were at that time actually ahead of events. The banks did not seem to be aware of what was under way. Thus, early in 1990, senior management of the largest bank - Den norske Bank - still expected a positive result for the year as a whole, and the chief executive officer of the second largest bank - Christiania Bank - was voted the best leader of the year.
The new fund was set up as an independent legal entity, located in and supported by technical staff from the central bank. Its mandate was initially to provide loans to the banks' guarantee funds to enable them to perform their roles. During that first year, another eight small to medium-sized banks received support.
Certain amendments were also made to the banking laws, which made it possible for the government to write down a bank's shares to zero. This ensured that share capital really could be written down if a bank's capital was lost.
At this stage, the crisis escalated rapidly. In October, it became evident that huge loan losses had wiped out the entire share capital of two of the three largest banks [Christiania Bank and Fokus Bank]. Their share capital was written down to zero by government decision. The government - through the Government Bank Insurance Fund - became the sole owner of the two banks.
By the end of 1991, most of the share capital in the largest commercial bank [Den norske Bank] was also gone. The bank received support from the government in the form of preference shares in early 1992. This was not enough, and in connection with further capital support later that year, it was decided that the bank's ordinary shares would be written down to zero. When the Government Bank Insurance Fund provided additional support to the bank, it became the sole owner. Key features of the Norwegian crisis resolution There are five features of the Norwegian resolution I would like to highlight:
* Private solutions were explored before the government intervened. * Share capital was written down to zero before committing public funds. * The government acted swiftly to limit contagion, but did not provide a blanket guarantee. * Liquidity support was given to illiquid, but solvent institutions. * The government did not use an asset management company - as the other Nordic countries did later on.
I shall briefly comment on each of them: Private solutions Private solutions to problem banks - with financial support from the banks' guarantee funds - were the norm before the crisis became systemic. The funds were - as already noted - quite active in the early phases of the crisis. Membership was [and still is] mandatory and the funds were financed ex ante by fees from the member banks.
The banks' guarantee funds had wide mandates to explore least-cost solutions, like recapitalizing a bank or providing guarantees or financial support to facilitate a merger or a take-over. As you have heard, by the end of 1990, the banks' guarantee funds were unable to handle the crisis as the larger banks started to face problems.
Before the Government Bank Insurance Fund injected capital into crisis-stricken banks, efforts were made to attract private investors. However, these efforts did not succeed. The option of foreign takeovers was also considered by the authorities, but at the time this was not a viable option, due to current banking regulation and strong political preferences for national ownership of banks. Banks' share capital was written down to zero Before the government committed any funds to the banks, it made sure that capital was written down according to the best estimate of loan losses at the time. Strict conditions were also tied to all capital support from the Government Bank Insurance Fund. Thus, public support did not come as "free lunches" for the banks, and their activities were curbed to avoid giving them an unfair competitive advantage. Shareholders were forced to cover the bank's losses before tax payers' money was put on the table. To my mind, this was imperative in order to muster the necessary political support and acceptance for the rescue operations.
It should be noted here, that the "zeroing" of equity capital in the three largest banks was hotly debated at the time. So much so, that the Parliament established a commission after the banking crisis was over to address the issue. Their overall conclusion was that the public authorities handled the financial crisis quite well, although the writing-down of the share capital in Den norske Bank could have been handled better. However, they also noted that there was no private domestic capital forthcoming at the time, and no political support for foreign ownership of the bank. No blanket guarantees were given Once the crisis had become systemic, the Norwegian authorities acted swiftly to limit contagion. But they did not issue any explicit blanket guarantee for the banks' liabilities. However, in late 1991, the Ministry of Finance announced that the government would implement measures necessary to secure confidence in the Norwegian banking system, while Norges Bank announced that it would secure the necessary supply of liquidity to the banking system. No assurances were given that individual banks or bank creditors would be rescued. In the end, only two small banks were closed and all depositors were repaid in full through the banks' guarantee funds. Creditors also recovered their funds in full, except for some creditors in one of the small commercial banks that were closed.
It is worth mentioning that ex ante, there was not a full deposit guarantee during the banking crisis, as the commercial banks' deposit scheme could in principle reject support measures. However, ex post, all depositors were repaid in full. After the banking crisis, a new deposit insurance law was enacted with limited [although generous] protection. Liquidity support was only given to illiquid, but solvent financial institutions Norges Bank was a fairly active lender of last resort during the banking crisis. By and large, it stuck to the classic principle of only lending to illiquid, but solvent institutions.
In the first stage of the crisis, the bank extended liquidity support to several small and medium-sized banks. These loans were guaranteed by the banks' guarantee funds. Most loans were provided at market rates, although a few were provided at below market rates.
In the second stage of the crisis, once it had become systemic, a division of responsibility between the different authorities was established. Norges Bank contributed loans to institutions that were experiencing liquidity problems, but where underlying solvency was satisfactory, while the government insurance fund provided solvency support.
It is also worth mentioning, that Norges Bank entered the banking crisis period with large, unsecured claims on the banking sector after sterilizing the heavy interventions during the currency crisis in 1986 in order to support the government's "low interest rate policy". At the end of 1986, central bank lending to banks thus stood at 14 percent of the banking sector's total assets. These loans were not repaid until 1993, i.e. after the end of the banking crisis. No use of asset management companies The authorities chose not to set up separate asset management companies - or "bad banks" - to handle problem loans. Bad loans were not considered to be excessive for management to handle "within" the bank. A bank knows its own borrowers best and has experience in working out defaulted loans. In addition, setting up an asset management company and transferring bad loans from the banks would have required complicated accounting and legal work, and it would have been hard to find a fair price at which the loans should be transferred. Last, but not least, such an asset management company would have required government funding. Thus, more taxpayers' money would have been put at risk. However, there was nothing to prevent the banks themselves, alone or jointly, from establishing subsidiaries to handle the bad loans. None chose to do so. Resolution costs Norway avoided a collapse of the banking system and an ensuing major credit crunch. The government recognized the severity of the problem at an early stage and showed a willingness to take the necessary measures. As a result, confidence in the financial system was quickly restored. Collateral values started to increase and loan losses fell. By late1993 the crisis was over, the banking sector was again profitable and started to raise private equity in the market.
Due to the quick resolution, the Government was able to contain the fiscal and economic costs of the banking crisis. The fiscal resolution costs have been estimated to about 2 % of GDP, which is low compared with many other crisis countries. However, the net fiscal cost turned out to be negative - the Government actually made a small profit of 0.4 % of GDP - when the government's shares in the banking sector were sold at a substantial profit.
The government became "owner of last resort" at the peak of the crisis when private investors were unwilling to invest. At that time, no one knew where the economy was heading. It was therefore reasonable that the government should benefit from its investment as the economy recovered.
We have also tried to estimate the economic costs of the banking crisis. As you all know, these are difficult to identify and measure, as banking crises often appear at the same time as a recession. Separating the effects of a banking crisis from the general business cycle is a major methodological challenge. Skipping all the qualifications, let me just note that our best estimate of the output losses associated with the banking crisis in Norway is around 10 percent of GDP. Comparison with the other Nordic countries In much of the literature on financial crises, the Nordic banking crises are regarded as one crisis, or three rather identical ones. However, the three crises differed, even if they had many common features. The banking crisis started much earlier in Norway, but the crises in Sweden and Finland became much deeper. It also took longer for the banking sectors to recover in these two countries.
The resolution methods were also quite different:
* The bank guarantee funds were actively involved in the early resolution efforts in Norway * The Norwegian authorities did not issue a blanket guarantee * Asset management companies were not used in the Norwegian resolution [and] * Shareholders' equity was written down to zero before public funds were committed to a larger extent in Norway than in the two other countries.
It is instructive to compare loan losses in these three countries with the Nordic country that avoided a crisis - Denmark. Loan losses were in fact as high in Denmark as in Norway, but they were somewhat more spread-out in time. Denmark thus avoided a banking crisis because the banks' capital base was stronger allowing them to absorb losses more easily. This was in part due to favorable tax treatment for general provisions and stricter capital requirements applied by the Danish authorities. This allowed the banks to weather the storm, while Norwegian banks collapsed as losses mounted. Relevance of the Norwegian resolution policy today Can we learn something from the crisis resolution methods adopted in Norway? Well, I think so - even though the Norwegian crisis had many idiosyncratic features.
Let me just focus on three important issues:
* The role of shareholders * The role of the government * The role of the central bank
I will address them briefly in turn: Role of shareholders In a financial crisis, the owners - together with management - are expected to handle the problems. This is obvious to all of us now, but this has not always been the case. Due to tight ownership regulations, banks became institutions without strong, responsible owners. Management tended to run the bank - and not always for the better, as the banking crisis showed. Hence, when the crisis broke, no clear direction was provided from the owners or the general assembly. The government had to intervene in order to save the banks as going concerns.
This has changed today. Ownership regulations have been relaxed. Today owners will normally get permission for stakes up to 25 percent. Foreign-owned subsidiary banks are in fact 100 percent owned. I look favorably on this development, as greater concentration should lead to greater responsibility - especially when the going gets rough.
During the crisis, banks' equity was written down to zero before the government committed new funds for the banks. Today, we expect owners to intervene before that becomes necessary. Also, banks' capital positions have been greatly improved and our ability to spot a crisis has been enhanced through extensive surveillance work. Thus, the likelihood of a banking crisis is - hopefully - much less. But, should a new crisis emerge, we will expect the owners to act responsibly and stand by their bank with the full strength of their banking group - if required. Role of the government In a financial crisis, the government is responsible for the financial system as a whole. But, as we all know, how and when to call a potential crisis systemic is hard. Some will argue that it is difficult to define, but easy to spot once it is there. The Norwegian banking crisis became systemic when new loan loss estimates were about to wipe out the banks' capital base. When the crisis hit the three largest banks - at the same time - it was fairly obvious to us that the crisis had become systemic. At that point the Government just intervened to save the system. The need to save the system will be as strong today - if a new crisis should emerge. But it is not obvious that the same resolution methods will be applied
First of all, I think we should look harder for private solutions. This could also involve foreign investors. During the banking crisis, this option was closed due to existing banking regulations. Today, we have a more open attitude towards foreign ownership of banks. [In fact, almost 1/3 of our banking sector is foreign-owned.]
And secondly, we should not hesitate to close banks. During the banking crisis one small bank was closed and another small bank was wound down. This involved - as you may have experienced yourself - a lot of complicated legal issues. Today, we are better equipped to handle a bank closure. Payment system procedures are in place to handle banks with insufficient funds and we are continuously improving our systems to minimize the negative effects of a bank closure.
Some will argue that crisis resolution should continue to be wrapped in the misty veil of "constructive ambiguity". I do not support this view. On the contrary, transparency about our crisis resolution policies may reduce pressure for early government intervention. Ambiguity should, however, prevail about whom might receive support in a crisis. No institution should be given the impression that they are "too big to fail". Role of the central bank The lender of last resort policy has just been reviewed by our Board. They noted that deep and liquid markets now provide banks with a wide array of funding sources, and supplementary collateralized lending from Norges Bank has proven to be quite adequate so far. In fact, no emergency liquidity support has been required from Norges Bank since the last banking crisis. However, should a general liquidity shortage arise in the banking system as a whole, we will be prepared to supply the necessary liquidity to the system, if required against non-traditional forms of collateral.
In the event of liquidity problems in an individual institution, the Board confirmed that we will stick to the classic rules for lender of last resort. Support will be given to solvent, but illiquid banks against collateral at a penalty rate. The Board also stressed that the central bank's role as lender of last resort should be restricted to situations where financial stability may be threatened without such support. This is in line with what we have expressed in letters and speeches since the banking crisis.
The Norwegian banking crisis was a slowly moving solvency crisis. The crisis peaked several years after the first signs of banking problems. We had a fairly good picture of what was going on, but even then there were widely divergent views about what to do. If a banking crisis were to erupt again, I am afraid we may not get that much time. Liquidity problems could suddenly emerge in a large bank during mid-day settlement, which will only give us the evening to sort out the problems. Do we have a systemic situation? Is the bank solvent? These will indeed be hard questions to answer at short notice.
Should the central bank have its own view of the solvency of major banks, so that it can act quickly? Is such information at all necessary if the liquidity support is fully collateralized? Or will collateral typically not be available - at least in traditional form - in a crisis? And then, why bother with collateral if the liquidity support has to be "approved" by the Government? These are just some of the issues that we will address later today, and I look forward to this afternoon's session. Summary and conclusions Let me summarize. How could this happen? The Norwegian banking crisis was a boom-bust crisis with some special national features. With hindsight, the policy mix in the pre-crisis period was far from optimal. As a result, there were no effective barriers to the explosive growth in bank lending. Could it happen again? Not on the same scale, I would hope. Banks' capital cushions are much better today. We have better and more balanced macroeconomic policies. And, our flexible inflation targeting regime supports our twin goals of price and financial stability. Thus, the likelihood of a new banking crisis is low today. How was the crisis resolved? The Norwegian banking crisis was resolved quickly with little cost to the taxpayer. Private solutions were widely used in the first stage of the crisis. Banks' share capital was wiped out before any government funds were committed. The government did not provide a blanket guarantee, although general public statements were made to secure confidence in the Norwegian banking system. And, separate asset management companies were not established. And, what can we learn from the crisis resolution methods adopted in Norway? The resolution methods we adopted in Norway are now part of the standard toolbox for crisis resolution. We have learnt to:
* Explore private solutions first * Expect more from shareholders * Act swiftly to limit contagion * Provide liquidity freely on good collateral.
Commit Government funds to save the financial system
Bearing in mind the gravity of the situation and the time available, we feel that the Norwegian banking crisis was handled quite well. Thus, I hope you will find that there is something to be learnt from the resolution methods we used.
Bernanke Says There May Be Benefit to Resurrecting Uptick Rule
By Jesse Westbrook
Feb. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said there may be a benefit in resurrecting a rule that restricts short-selling stocks when share prices are falling amid the current bear market.
?In the kind of environment we have seen more recently? the so-called uptick rule ?might have had some benefit,? Bernanke said in testimony before the House Financial Services Committee today. The rule, scrapped by the U.S. Securities and Exchange Commission in 2007, barred investors from betting against a stock until it sells at a higher price than the preceding trade.
Bernanke?s comments may give credence to lawmakers such as U.S. Representative Gary Ackerman, a New York Democrat, who blamed the rule?s elimination for triggering attacks on financial stocks. The Standard & Poor?s index has tumbled 50 percent since the SEC dropped the uptick rule 16 months ago. New SEC Chairman Mary Schapiro said in January she may resurrect the provision.
Aus seiner gestrigen Rede: Prinzipien zur Wiederherstellung des Vertrauens an den Märkten
The choice we face is not between some oppressive government-run economy or a chaotic and unforgiving capitalism. Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors, and ultimately to keep those financial institutions strong. Not to stifle, but to advance competition, growth and prosperity. And not just to manage crises, but to prevent crises from happening in the first place, by restoring accountability, transparency and trust in our financial markets.
While eschewing specifics (like the budget, this is a week of "stay tuned"), the seven principles on regulatory reform Obama outlined in remarks this afternoon were:
1. The big financial institutions that can have systemic impact if they fail need strict regulatory oversight.
2. Modernizing and streamlining the regulatory structure to strengthen the markets.
3. Openness and transparency lead to trust in the markets.
4. Strong and uniform supervision for financial products based on actual data rather than abstract bank-created models.
5. Strict accountability for executives.
6. Comprehensive, loophole-free application of regulation.
7. Challenging other countries to adopt similar high regulation standards so their crises don't virally hurt the global economy."