Although governments have not been supine in the face of this danger, they have fallen into a trap. Their cumulative efforts to avert trouble have had the perverse effect of adding significantly to the risk. This is because, in most countries, governments have tried to eliminate runs by insuring their citizens’ bank deposits, whether directly or by arranging in advance for sick banks to be rescued. Mostly, this has brought stability. But it has also created a vast moral hazard: a bank that is in trouble, but which knows that there is some form of public safety net slung underneath it, is more likely to take a reckless last gamble with its depositors’ cash.
To solve this problem, countries have relied on regulation. But some regulators are now at last admitting in public that it is increasingly hard for them to keep a close eye on banks whose activities reach far beyond conventional deposit-taking and lending, and which operate globally. To make matters worse, regulators can no longer count on the “Three Musketeers” principle to help them deal with ailing banks. When banking was essentially a cartelised business, bankers were often willing to help support sick rivals as a quid pro quo for protection. But this “one for all and all for one” ethos is being undermined by stiffer competition. These days, it is every bank for itself.
What is to be done? Regulators in America and elsewhere are putting less emphasis on rule-making and more on encouraging banks to buttress their internal controls. Laudable though this effort is, it will not solve the underlying problem: how to let more banks fail without triggering a systemic crisis.
To enable this to happen, governments need to think again about the bargain they have struck with the banks. In return for the safety net (and for the implicit subsidy it entails), they have insisted on close regulation of what the banks do. This solution, inadequate already because of the moral hazard it creates, makes no sense in a system of banking that has become too complex for the regulators to manage. It is time to take seriously the case for a far-reaching reform.
One idea, talked about for years but never adopted, is “narrow banking”. This would restrict deposit insurance to tightly supervised banks that would be allowed to invest only in safe, highly liquid assets, such as government bonds. Most of what is today considered “banking”, including lending, would be left to other, uninsured financial institutions.
Next year’s model?
The beauty of narrow banking is that it would continue to provide a haven for small savers and those who prize safety above all else, while allowing the more adventurous to take a punt on riskier firms. In return for giving up their safety net, these “broad” firms could be regulated far more lightly and so would find it easier to compete with securities houses and other non-bank rivals.
Narrow banking has its critics. One danger is that the new regime would have instabilities of its own. When the sun is shining, would not depositors pile into the “broad” institutions to profit from their higher returns, only to scamper abruptly to safety the moment the economy turned down? In that case, the broad institutions might collapse like ninepins, and governments might need to bail them out anyway. And might the system damage the real economy by making it more expensive for small and middling firms to borrow?
Neither objection is compelling. The first can be dealt with by preventing broad banks from offering deposits redeemable on demand, as narrow banks would. Deposits at broad institutions could have relatively lengthy maturities, giving the institutions time to prepare for outflows. They would also almost certainly have far more capital than today’s banks, and plenty of lines of credit that could be called on in an emergency. As for the cost of lending to small businesses, this would rise, but probably not by much. After all, unsubsidised finance companies already lend to such firms at rates that compete with those of banks.
Switching to narrow banking would be a dramatic and far-reaching change. It would shrink the banking system and redefine the very idea of a bank. That is why governments have so far preferred the ever-worsening muddle of insure-and-regulate. Is it too much to hope that, on this occasion, they will have the sense to fix the roof before the storm breaks?
VOCABULARY
| 1. banking | банковские операции; банковское дело |
| 2. deposit insurance | страхование вкладов |
| 3. «systemic» collapse | зд. кризис (крах) всей банковской системы |
| 4. run (s) on the banks | зд. массовое изъятие денег из банков |
| 5. mortgage-lending «thrifts» | ссудно-сберегательные учреждения, привлекающие частные сбережения и предоставляющие ипотечные кредиты; ипотечные учреждения |
| 6. to take deposit (s) | принимать вклады (депозиты) |
| 7. savers | вкладчики; частные инвесторы |
| 8. lending at interest | предоставление ссуд под процент; креди-тование |
| 9. trading business | зд. биржевые операции; сделки на фондовой бирже |
| 10. assets | активы |
| 11. banking marriage (banking merger) | слияние банков |
| 12. Barings | Бэрингз – старейший английский коммерческий банк (разорился в 1995 году) |
| 13. risk-management system | система управления рисками |
| 14. state-of-the-art | новейший, самый современный и передовой |
| 15. merchant bank | коммерческий банк |
| 16. unhedged bets | «незастрахованные» операции на бирже; игра (сделки) на фондовом рынке без хеджирования |
| 17. banking regulators | органы (учреждения) контролирующие и регулирующие банковскую систему |
| 18. loss of liquidity | потеря ликвидных средств |
| 19. national paymen (s) systems | национальные платежные системы (систе-мы переводов платежей и между банками и другими кредитно-финансовыми учрежде-ниями) |
| 20. banks’ exposure | зд. 1) взаимные (межбанковские) долговые обязательства (по кредитам); 2) риски потерь, связанные с межбанковским кредитованием |
| 21. «Three Musketeers» principle = «one for all and all for one» | «один за всех и все за одного» |
| 22. quid pro quo (лат.) | услуга за услугу, компенсация |
| 23. subsidy | субсидия |
| 24. «narrow banking» | «узкие» (надежные) банковские операции», т.е. система, при которой банкам разрешается инвестировать средства только в надежные высоколиквидные активы (при страховании депозитов) |
| 25. «broad» firm (s) | зд. финансовые учреждения, осуществляющие «широкие» операции, с ликвидными активами включая рискованные операции |
| 26. securities houses | инвестиционные компании, фирмы, осуществляющие распространение ценных бумаг и операции с ними |
| 27. to bail out (banks) | «спасение» банков, находящихся на грани банкротства |
| 28. deposits redeemable on demand | депозиты с выплатой по требованию |
| 29. maturity | зд. наступление срока платежа |
| 30. line (s) of credit | кредитная линия, т.е. неформальное обязательство банка кредитовать клиента до установленного максимума |
| 31. to call on | требовать уплаты |
| 32. cost of lending | зд. ссудный процент |
4. Переведите отрывок «Risky business».
5. Напишите реферат аннотацию данного текста
1. Прочитайте следующий текст и найдите ключевые слова и предложения (фрагменты):
CENTRAL BANKS ON THE TRAIL OF THE MUTANT IFLATION MONSTER
Any central banker worth his salt knows what central banks are meant to do: aim for “price stability”. But stability of which prices? Are the ever higher prices being paid for “assets’ - most notably shares but also such things as Manhattan apartments, Beatles guitars and vintage wines - as damaging to economies as rapid increases in the average price of goods and services such as carrots, clothes and haircuts?
The question of whether central banks should worry about asset-price inflation as well as product-market inflation is currently the subject of a lively debate - and one of pressing importance. Rising prices for assets usually do not figure in the consumer-price indices by which inflation is conventionally measured. Yet while these indicators show that inflation renfains subdued in developed economies, the prices of financial assets such as shares have been soaring
Central bankers have good reason to hate inflation. By distorting prices, it reduces economic efficiency and therefore can harm growth. It is trickier to spot changes in relative prices if the general price level is rising rapidly. Businesses cannot tell whether rising copper prices, for example, reflect a scarcity of the metal or just a general inflationary trend. So resources are misallocated.
This argument is generally applied to the prices of goods and services for current consumption by households or businesses. But it surely also applies to the prices of claims on future goods and services, such as equities or property. Just as with product prices, rapid increases in asset prices can distort the allocation of resources. If a sharp rise in share prices reduces the cost of capital, for example, then firms will be tempted to overinvest. In addition, property-price booms lure in more investors, who are encouraged to borrow heavily in order to bet on further price gains - a course which eventually ends in tears.
Indeed, the consequences of large increases in asset prices can be much more serious for economies than consumer-price inflation. Soaring share and property prices in Japan in the second half of the 1980s caused massive overinvestment in factories and machinery, and property. The consequent bursting of that bubble has been painful for the economy.
Central banks already look at asset markets for advance signals about the strength of the economy, but there are two reasons why central banks might want to respond more directly to increases in asset prices.
* The wealth effect. Higher asset prices can feed through into the prices of goods and services. Higher share prices boost household wealth, which encourages consumers to spend more. A rise in share prices also makes it cheaper for firms to raise funds and so invest more. Meanwhile, the rise in the value of collateral, such as property, increases the willingness of banks to lend. All these things can swell domestic demand and so push up general price inflation. Likewise, a sharp fall in asset prices might push an economy into recession.
* Financial stability. If an unsustainable rise in asset prices goes into sharp reverse, this can trigger financial instability. Japan’s recent experience offers a painful example of how a collapse in share or property prices can harm a banking system.
Since pricking a financial bubble is a risky business, it is clearly better for central banks to step in early to prevent one developing. The tricky question is how to distinguish asset-price inflation - from a rise in share prices which reflects real future gains in company profits. It is unlikely that the doubling of American share prices over the past three years is fully justified by faster productivity growth and hence higher future profits.
Liquid refreshments
It is true that the growth of money in an individual economy has long ceased to be a reliable compass by which to steer interest rates, but many economists believe that global money-supply growth is still a useful indicator. They argue that global “excess money” (broad money growth minus nominal GDP growth) is a handy gauge of liquidity which is available to invest in financial assets. This measure of liquidity is currently growing at its fastest rate for ten years.
Just as too much money in the real economy chasing too few goods causes goods-price inflation, so too much money in the financial sector chasing too few assets causes asset-price inflation. This theory dates back to Irving Fisher, an early 20th-century economist. He believed that policy-makers should focus on a more broadly defined price index which includes asset prices. A rapid rise in this index would signal the need for tighter policy.
But even if share prices are rising too rapidly, the ability of central bankers to dampen speculative excesses is constrained. Central banks cannot pursue two goals - stable product prices and stable asset prices - with interest rates alone. If a central bank tries to cap asset prices by raising interest rates when there is little sign of inflation in the real economy, it could result in deflation in product markets.
History is instructive. There are two examples of central banks acting to burst share-price bubbles. Both ended in tears. In the late 1920’s, the Fed was at hrst reluctant to focus on the stockmarket as a target of policy; when it did raise interest rates, Wall Street crashed in 1929. Likewise, the Bank of Japan was slow to respond to soaring asset prices in the late 1980s, mainly because inflation remained below 2%; when it finally did, markets crashed.
There is an awkard asymmetry in how central banks can respond to stockmarkets. It is politically much easier for them to slash interest rates quickly to support the economy after share prices have collapsed than it is to raise rates early to let some air out of a financial bubble. Far from being dead, inflation has taken on a new and more dangerous guise.
VOCABULARY
| 1. consumer-price index (indices) | индекс (ы) потребительских цен |
| 2. financial assets | финансовые активы |
| 3. relative prices | относительные цены |
| 4. household (s) | стат. - домашнее (ие) хозяйство (а) |
| 5. claims on future goods | объекты спроса, стоимость которых возрастет в будущем |
| 6. to bet on further price gains | играть на повышение |
| 7. wealth effect | «эффект богатства», т.е. изменение стоимости активов в результате изменения уровня цен |
| 8. «excess money» | избыточное количество денег в обращении |
| 9. broad money | денежный агрегат М3 |
2. Переведите отрывок «Liquid refreshments».