By Brian Kesten

Earlier last week, Israel’s legislature unanimously approved a limit on executive pay at banks, insurance companies and investment groups. The law creates a fixed ratio for executive salary at no more than 44 times the earnings of the lowest paid employee, which would work out to about $650,000 per year for executives.

In the U.S., no ratio is required by law, but the Dodd-Frank Act does require that banks publish the ratio. In Europe, the EU applied a cap on bonuses for “material risk takers” at banks, setting the limit at 100% of salary. In the Netherlands, bankers can only receive a 20% bonus, or no bonus at all if the bank has not repaid government bailout loans.

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April 08, 2016

By Brian Kesten

Starwood Hotels & Resorts, an American company, has agreed to buy and renovate three historic resorts in Cuba. The purchase, approved by the Treasury Department in the U.S., marks the first major foray of an American company into Cuba in decades. Although Congress has not acted to end the embargo on Cuba, President Obama continues to lift restrictions on travel, financial transactions, and trade with Cuba.

The major Caribbean island observed a 25 percent increase in visitors in 2015. However, Cuba may not have the capacity to welcome additional visitors: Cuba’s resort industry has been oversaturated, causing shortages and overbookings.

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April 06, 2016

By Brian Kesten

Hackers posing as the Bangladesh Bank successfully transferred $81 million from the Bank’s account at the Federal Reserve’s New York location. Had the transfer request not contained a typo, misspelling “foundation” as “fandation,” millions more would have evaded the Fed’s authentication process. Indeed, the heist was only partially successful, as the hackers aimed to withdraw as much as $1 billion.

The unprecedented heist marks a new era of crime at the intersection of cyber crime and the traditional bank robbery. Investigators have attempted to trace the stolen money, but the trail goes cold in Philippines casinos. In the wake of the theft, Bangladesh’s central bank governor resigned, and the central bank hired attorneys to consider a suit against the New York Fed.

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April 04, 2016

By Brian Kesten

The Netherlands’ Bureau of Economic Policy Analysis’s World Trade Monitor reported Thursday that the value of goods traded internationally fell by nearly 14% in 2015. The drop in trade value marks the first time since the 2009 financial crisis that international trade value suffered a contraction. Under the circumstances, the International Monetary Fund has advised G20 members that global growth in 2016 may not meet expectations.

China’s exporting woes are perhaps most responsible, while currency crises across the globe have also contributed. These factors combined in Brazil, where the Brazilian real has declined in value, and Chinese imports to Brazil declined 60% in January 2016 compared to January 2015.

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March 04, 2016

By Brian Kesten

This summer, United Kingdom citizens will vote in a referendum to determine if the UK will leave the European Union. After EU members spent much of 2015 negotiating with Greece to restructure its debt and avoid a “Grexit,” the 2016 UK vote now poses the most significant threat to the EU’s modern governance experiment.  

Thus far, Britain’s conservative Prime Minister, David Cameron has encouraged Britons to remain in the EU, while London’s Mayor Boris Johnson, another conservative, has pushed for Britain to leave the European Union. Cameron has argued that Britain is able to earn concessions by remaining in the Union. At the same time, commentators fear that the EU could unravel if the UK leaves during the migrant crisis.  

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March 03, 2016

By Brian Kesten

The Federal Reserve increased the federal funds rate for the first time in nearly a decade this past December, raising the target rate from 0-0.25% to 0.25-0.5%. Yet the Fed’s historic move to raise rates is dwarfed in significance by the actions of the European Central Bank (ECB), the Bank of Japan (BoJ), and the Swedish Riksbank: the unprecedented negative interest rate policy. This marks the first known monetary move below the zero lower bound, previously thought to be the hard floor on interest rates.

In effect, the central banks in Europe and Japan are charging fees for holding required and excess reserves parked at the central bank by domestic financial institutions. Austerity programs and fiscal deficit fears have stifled growth in the Eurozone and Japan, so the central banks in these nations essentially bear the mantle of stimulating economic growth, with fiscal spending and tax reductions off the table. Before implementing negative interest rates, the ECB, the BoJ, and the Riksbank engaged in quantitative easing programs, aimed at flooding financial institutions with liquidity that the commercial banks could invest in domestic industries in the form of business and home loans.

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March 02, 2016

By Brian Kesten

The Bank of England’s Prudential Regulation Authority announced new rules last Thursday aimed at insulating deposits from the institutional risks of investment banking, which will go into effect in 2019. As a result, British institutions including Barclays, HSBC, Lloyds and Santander UK – institutions with more than $38 billion in deposits – will be forced to carry roughly $5 billion more in capital reserves. In addition, the ringfenced portion of the institution will be staffed separately, and must be treated as a third party.

U.K. regulators did offer concessions to the banks, which will face heightened regulatory standards overall. The largest U.K. institutions will not be prohibited from transferring capital from the retail arm to other parts of the bank. In addition, Treasury officials withdrew their plans to enforce a “reversal of burden of proof,” which would have held senior managers accountable via fine or ban for violations under the manager’s supervision. News of these regulations bumped up the stock prices of British financial institutions.

As U.S. regulators and banks battle over the implementation of the Volker Rule, the regulatory scheme in Britain bears watching.

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November 06, 2015

By Brian Kesten

Back in 2010, Greece agreed to privatize about $56 billion in state owned assets as a component of the international bailout accord at the time. Five years later, Prime Minister Alexis Tsipras appears to have given the greenlight to Greece’s Hellenic Asset Development Fund (“Taiped”) to continue the privatization program, which so far has only yielded about $600 million in cash proceeds towards Greece’s public debt.

Despite opposition from Mr. Tsipras’s own Syriza party, Greece stands to sell 51% stakes in airports, utilities, and other industries. Yanis Varoufakis, the Greek finance minister who resigned during bailout negotiations, argued “[I]t’s not very clever to sell off the family jewels in the middle of deflationary crisis . . . It is wiser to develop state property and increase its value using smart financial resources to strengthen our economy.”

  

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November 04, 2015

By Brian Kesten

The tumult in Greece continues, as Alexis Tsipras’s left-wing Syriza party won the plurality of votes Sunday night. Just last month, Tsipras resigned as Prime Minister and called new elections to determine Greece’s political direction in the wake of Tsipras’s 86 billion euro bailout. The election will allow Syriza to renew a coalition with another anti-austerity group, the right-wing Independent Greeks party.

Meanwhile, the agreed upon reforms were not greeted with smooth implementation. New banking rules risk wiping out corporate deposits if Greek banks are otherwise unable to meet EU bank capitalization rules. Although EU negotiators sought to preserve these deposits, the reality of implementing bank reforms clashes with EU bank capital rules and could result in further destabilization of the Greek financial system.

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October 01, 2015

By Brian Kesten

Even as the U.S. continues to rebound from the financial crisis that began almost a decade ago, the Federal Reserve announced Thursday that the Federal Open Markets Committee (FOMC) would continue to hold rates at the record low. Although thirteen of seventeen Fed officials still believe interest rates should increase in 2015, the Fed held off for at least a few more months. As the global focus on Chinese currency depreciation and stock market tumult continues to send shockwaves through international markets, the Fed pointed to stubborn domestic wage growth and fragile global economic conditions in justifying the non-move.

Progressive economists, such as Joseph Stiglitz, had advocated a rate hold as a means of reducing inequality and protecting worker wage growth, rather than worrying about inflation. On the other hand, the pages of the Financial Times are filled with opinions denouncing the Fed’s skittishness, and questioning the independence of the Fed board altogether.

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September 29, 2015