BOE: Credit, Asset Prices Could Guide Macroprudential Rules
Sat, Nov 21 2009, 00:21 GMTBOE: Credit, Asset Prices Could Guide Macroprudential Rules
LONDON -(Dow Jones)- International policymakers should explore in more depth whether credit growth and asset prices are reliable leading indicators of financial crises, and if they could be used to create a rule for the manipulation of macroprudential tools, the Bank of England said Saturday.
In a policy discussion paper, the central bank acknowledged that it wouldn't be easy to design such a rule, and said that even if one were later to be developed, a degree of discretion would still probably be necessary in the policy-making process.
Macroprudential tools aim to enhance the resilience of the financial system by discouraging the buildup of risk in upturns and reducing impediments to risk-taking in downturns, moderating the extremes in the economic cycle.
"Some studies have argued that credit growth and asset prices are useful leading indicators of banking system crises," the BOE said. "It is important that this work be pursued, as it may be possible to introduce a baseline rule-like element into any system."
It highlighted the complexities of establishing a rule, noting that if based on stock imbalances, it performed quite well in market upswings, but was slow to react in a downswing, and conversely, if based on credit and asset price growth rates, it was more sensitive to downturns but reacted slowly in upturns.
"In the near term, it seems unrealistic to think that it would be possible to settle on an easily comprehensible numerical target for macroprudential policy, equivalent to the inflation target in a monetary policy context. But that need not be fatal," the BOE said.
"Many public policy frameworks operate effectively with a qualitative objective, which here would be maintaining a stable supply of financial intermediation services to the real economy," it added.
Wall Street ends Friday in negative; Dollar with gains
Fri, Nov 20 2009, 22:14 GMTThe Dow Jones ended Friday with a loss of 0.14% but up for the week. Stocks started with a sharp decline but managed to move away from the lows. Gold rose and ended above 1,150 an ounce. Crude oil fell for the second day in a row.
The ecPulse.com analysis team affirms: “The U.S stocks end this week closing in red despite the current gains in health-care and consumer shares as fears are spread throughout overall markets concerning a global recovery while that huge U.S huge high-tech corporation; Dell Inc, posted its earnings that came in worse than forecasts, reporting EPS of $0.23 a share down from $0.27 reported in the prior quarter.”
The Dollar finished the day and the week with gains across the board except against the Yen. The fall in stocks with an increase in risk aversion helped Greenback recover.
Currencies tied to commodities posted important losses on Friday. AUD/USD fell to 0.9055 posting a fresh 2–week low. Despite rising for the week the main trend is still against the Dollar.
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