02 апреля, 16:02

Capital Flow Management with Multiple Instruments -- by Viral V. Acharya, Arvind Krishnamurthy

We examine theoretically the role of reserves management and macro-prudential capital controls as ex-post and ex-ante safeguards, respectively, against sudden stops, and argue that these measures are complements rather than substitutes. Absent capital controls, reserves to be deployed ex post are partially undone ex ante by short-term capital flows, a form of moral hazard from the insurance provided by reserves in sudden stops. Ex ante capital controls offset this distortion and thereby increase the benefit of holding reserves. Thus, these instruments are complements. With foreign investment flows into both domestic and external borrowing markets, capital controls need to account for the possibility of regulatory arbitrage between the markets. Through the lens of the model, we analyze movements in foreign reserves, external debt, and the range of capital controls being employed by one large emerging market, viz. India.

28 марта, 18:21

Avoid RLI Corp., Spike Your Portfolio With Top 3 Insurers

We have zeroed in on three bullish stocks to leverage investors' portfolio with an advise to avert RLI Corp. (RLI) as of now.

28 марта, 18:00

Americans Haven’t Saved Enough for Retirement. What Are We Going to Do About It?

Phil Ashley/Getty Images Each year, BlackRock, the world’s largest asset manager, sends a much-anticipated letter to leading CEOs. This year, chief executive Larry Fink’s focus was on why it is imperative for business to contribute to society. One of the first big issues he highlighted was retirement: “Many [individuals across the world] don’t have the financial capacity, the resources, or the tools to save effectively; those who are invested are too often over-allocated to cash. For millions, the prospect of a secure retirement is slipping further and further away — especially among workers with less education, whose job security is increasingly tenuous. I believe these trends are a major source of the anxiety and polarization that we see across the world today.” We agree: Over the last four decades, changes across corporate America have put workers and the broader U.S. society at risk. We’ll talk more about the risks in a bit, but first it’s worth outlining how we got here. The Road to the Retirement Crisis Ultimately, the shift from defined benefit pension plans to employee-directed defined contribution 401(k)s is the major driver of the impending retirement crisis. Beginning in the 1980s, this move helped companies reduce their retirement liabilities and better meet their quarterly financial targets, but put an unmanageable burden on employees. For 401(k)s to be effective, for example, contributions must be made consistently throughout a worker’s career. In practice, people tend to make contributions sporadically. They also struggle in choosing contribution levels and investment options, and avoiding the temptation of using their savings for other needs. Even when contributions are made, 401(k)s tend to earn subpar returns on average due to limited investment strategies and high administrative expenses. Employees in defined contribution plans often do not have significant investing expertise and earn rates of return that are substantially below professionally managed pension plans. When workers near retirement have to decide how to withdraw funds, determine a spending rate, and map out an investment strategy, many lack the expertise to do so effectively. The result is that many workers are left with insufficient nest eggs for retirement and won’t be able to maintain the economic position they achieved while working. Among Americans between 40 and 45 years of age, for example, the median retirement account balance is just $14,500 — less than 4% of what the median-income worker will require in savings to meet his retirement needs. What’s worse, Social Security currently provides a declining percentage of the required retirement income. For a median income worker, Social Security minus Medicare premiums today covers about 29% of their pre-retirement income, down from 40% two decades ago. In addition, less than four years from now, Social Security costs are projected to begin exceeding revenues until that program’s Trust Fund is fully depleted in 2034. This will put further pressure on Social Security benefits. Based on these trends, we predict the U.S. will soon be facing rates of elder poverty unseen since the Great Depression; in fact, one study shows that more than one in three retiring Americans will find themselves in or near poverty in the next 10 years. This wave of older poor Americans will strain our social safety net programs and budgets as the country copes with providing low income elder shelter, food, and health care. This will likely not just have an impact on state and federal governments; it could also tear at the social fabric of America in fundamental and destructive ways. It’s bad enough that incomes have stagnated for all but the richest Americans; what happens when an entire generation, many of whose members have worked hard all their lives, suddenly have little to show for it? Polls showing that large majorities of the population worry about retirement security should be a warning sign to business leaders and politicians alike. One Potential Solution The good news is that fixing the coming retirement crisis is possible. It won’t involve reinstituting traditional pensions, however. Why? The first reason is the current nature of competition. If an individual company tries to ensure their workers have a secure retirement, it burdens them with an added cost not shared by their competitors. This will make broad adoption much harder than if a level competitive playing field can be established. More importantly, a company-by-company approach is ill-suited to today’s increasingly mobile workforce. Employees are increasingly likely to move from job to job rather than make their career at a single organization, and are generally cashed out of existing 401(k)s by their old employers and have to start all over again. This doesn’t even begin to tackle the issue of freelancers, contractors, and gig workers who now, more than ever, need a portable pension-type benefit that does not burden employers or taxpayers with unfunded liabilities. We need a holistic solution. In our book, Rescuing Retirement, we put forward such a plan. It requires no new taxes, does not increase the deficit, and actually reduces the administrative burden on companies that sponsor plans. Under our proposal, every worker will receive a personal Guaranteed Retirement Account (GRA). Workers maintain ownership of this account as they move from job to job, automatically contributing at least 1.5% of every paycheck to the GRA until they retire. A matching 1.5% is provided by each employer. To offset the required employee contribution, the plan gives every worker up to a $600 tax credit. This almost fully pays for the contribution for people earning below median income — our most vulnerable workers. We accomplish this in a deficit neutral way by redeploying the existing tax deductions for 401(k) contributions. Those deductions disproportionately benefit high income employees who are not at risk in retirement. To achieve higher returns with lower risk, savings in the GRAs are pooled and invested. Workers select a professional pension overseer, which could include government entities such as state pension funds or private sector pension managers. Pooling GRAs in this way reduces administrative costs and gives GRA holders access to higher returning investment products and the best asset managers. Upon retirement, the GRA is automatically converted into a government guaranteed annuity based on their GRA balance which provides consistent, life-long income for the employee and his or her spouse. This way, retirees can never outlive their savings. Why It’s a Good Deal for Companies We believe businesses will find the 1.5% contribution rate affordable and attractive for several reasons: The cost of employer contributions is substantially offset by relief from the burdensome administration and regulatory burden of existing plans (determining investment options, managing early redemptions and departing employees, negotiating fees, etc.) Many employers will be able to reduce expenses as compared to traditional pension plans or 401(k)s. A modest, one-time price increase of less than 1% on their goods or services will fund the entire plan for most employers. Aging workers will be better able to retire, making room for younger workers. A 2017 study by Prudential and the University of Connecticut estimates that a one year delay in retirement age by one employee could cost an employer $50,000. Our approach is even beneficial for small businesses not currently offering any retirement plans. Small businesses are like families, where owners know personally and care deeply about their employees. And yet, in 2016, less than 20% of companies with fewer than 24 employees sponsored any kind of retirement plan. This doesn’t mean they don’t want to help; a 2016 Pew survey found that small firms would welcome an easy solution to their employees’ retirement problems. The simple to administer GRA model would enable many small employers to do what they have wanted to do all along: take care of their workers in retirement without the cost, complexity, or liability associated with the other alternatives. Most executives care about their people. They understand the basic idea that employees are the foundation of their company’s success, and deserve dignity and financial security in their old age. No leader wants to see someone who loyally dedicated his or her career to a company ending up in poverty. And yet due to the current set of short-term pressures placed on today’s business world — where a CEO is only as good as the last quarter’s results — executives have offloaded volatile retirement liabilities onto workers who are ill-equipped to bear that burden. To be sure, the solution doesn’t rest entirely on the shoulders of executives; public policy plays a huge role. But business leaders should be coming up with ways to help address the burden created in large part by pension changes they helped usher in. We’ve offered one potential approach; what will be yours?

25 марта, 19:01

Braced for any external financial impacts

CHINA’S financial sector is capable of resolving external impacts, the country’s central bank governor said yesterday when responding to questions on possible new risks from rising global uncertainties. “If

22 марта, 16:20

The Economics of Why Companies Don’t Fix Their Toxic Cultures

naqiewei/Getty Images Over the last decade, industries, academics, and the public sector have turned their focus toward culture and ethics in response to the financial crisis as well as misconduct at a broad range of corporations. But what role does culture play in corporate misconduct, and why do these problematic cultures persist? My perspective and approach to misconduct risk are influenced by my work as a bank supervisor, and by my background and training as an economist. In my view, bank supervision must include attention to the culture at financial firms, not just to their financial safety and soundness. The justification for this attention comes from relatively simple economics. By thinking of a company’s culture as a form of investment subject to market failures, we can better understand why companies sometimes tolerate misconduct, and why they can’t always fix it on their own. Though my experience is in the financial sector, these lessons apply to other industries as well. The economics of corporate culture Analyses of recent cases of misconduct in the financial sector suggest that misconduct is not just the product of a few individuals or bad processes, but rather the result of wider organizational breakdowns, enabled by a firm’s culture. One way to think about the underlying factors involved is as “cultural capital.” The possibility of employee misconduct—the potential for behaviors or business practices that are illegal, unethical, or contrary to a firm’s stated values, policies, and procedures—is a form of risk just like liquidity risk or operational risk. Investments in cultural capital is one way to reduce that risk. A firm’s cultural capital is a type of asset that impacts what a firm produces and how it operates. Cultural capital is analogous to physical capital, like equipment, buildings, and property, or to human capital, like the accumulated knowledge and skills of workers, or reputational capital, like franchise value or brand recognition. In an organization with a high level of cultural capital, misconduct risk is low, and its organizational structures, processes, formal incentives, and desired business outcomes are consistent with the firm’s stated values. Unspoken patterns of behavior reinforce this alignment and drive corporate outcomes. By contrast, in an organization with low levels of cultural capital, formal policies and procedures do not reflect “the way things are really done” — that is, the stated values of the organization are not reflected in the behavior of senior leaders or the actions of the organization’s members. Misconduct then results from norms and pressures that drive individuals to make decisions that are not aligned with the values, business strategies, and risk appetite set by the board and senior leaders. Rules may be followed to the letter, but not in spirit. All of this increases misconduct risk and potentially damages the firm and the industry over time. As with other forms of tangible and intangible capital, a firm must invest in cultural capital or it will deteriorate over time and adversely impact the firm’s productive capacity. When viewed through this economic lens, the question becomes: If misconduct risk is bad for firms, why don’t they invest in cultural capital and reduce the risk themselves? Why do regulators and supervisors need to get involved? Market Failures and Misconduct Risk It’s worth noting that many large financial firms have increased their attention to misconduct risk and cultural drivers in the wake of serious frauds and enforcement actions over the past several years. But the degree of commitment and progress in these efforts has not been even across the industry, and serious and persistent misconduct continues in some businesses. So, why wouldn’t a firm do more to invest in cultural capital? Traditional economic theory may offer a few explanations. Namely, firms may operate with sub-optimal levels of cultural capital due to different types of market failures. Three well-known phenomena—externalities, principal-agent problems, and adverse selection—may help explain why misconduct risk persists. Externalities. Externalities are the impact that a transaction between actors has on other unrelated actors. If a company pollutes when making a product, neither the buyer nor the seller bears the cost of that pollution – the cost falls on the rest of society. Externalities can drive a wedge between private- and socially-optimal outcomes and lead firms to underinvest in their own resiliency by ignoring the broader impact of bad outcomes on the financial sector and the real economy. Does a firm’s toxic culture create an externality? Yes, because the impact of employee misconduct extends beyond the individual and even the firm — in finance it can affect the safety, soundness, and effectiveness of the financial sector and the broader economy. If a firm commits fraud or another type of misconduct, for instance, much of the cost of that misconduct does fall on people involved – managers, employees, and investors – in the form of fines, diverted management attention, or even bankruptcy.  But this can also impose costs on people not directly connected to the company.  Customers might lose confidence in the firm or the industry as a whole and financial intermediation could decline.  In such a case, misconduct has created an externality. And there is evidence that financial misconduct can have broader impact, imposing costs beyond the industry. Recent surveys, for example, have found that confidence in the financial sector has fallen by half over the last decade, which can impede the efficient intermediation of credit and the provision of financial services. In the case of pollution, externalities motivate government intervention. In banking regulation, externalities are the conceptual driver behind the enhanced prudential standards for capital, liquidity, and risk management that are currently applied to the largest, most systemically important financial institutions. The same reasoning suggests a possible role for regulators and supervisors to consider company culture and the potential misconduct. Because the costs of that misconduct are not always paid by the firm, it may substantially underinvest in the cultural capital required to prevent it. Principal-agent problems. Principal-agent problems occur when the incentives of employees don’t align with the broader interests of management or shareholders. This can lead to excessive risk-taking, underinvestment in risk-reduction and risk-control mechanisms, and a focus on short-term returns at the cost of long-run viability. Think about the trader who is compensated on short-term profits and losses and not long-term value creation.  The misalignment of incentives can tilt the firm toward excess risk-taking unless curbed by the appropriate culture and focus on risk management. These issues can be amplified by the opacity intrinsic to many financial activities that allows misconduct to persist and erodes the cultural capital of the firm. Adverse selection. Adverse selection occurs when those particularly ill-suited for something are the most likely to participate. This could occur in the context of culture and misconduct if conduct-related events change the composition of a firm’s workforce. Firms with relatively low cultural capital (and a relatively high tolerance of misconduct risk) may attract and retain employees and clients more inclined to take inappropriate risks and push beyond internal limits and controls. Further, high-quality directors, executives, and employees might leave such firms or decline to join them, depleting the firm’s human capital and contributing to the deterioration of cultural capital. Role of the Public Sector These market failures suggest a role for the public sector to encourage resiliency, including investment in cultural capital, beyond what the firm would choose to do on its own. That is, if firms don’t have sufficient incentives to overcome these forces, then the public sector should push toward a better overall outcome.  Given my role as a bank supervisor, my focus is on financial firms, but these types of phenomenon can lead to inefficient outcomes in any industry. While misconduct risk poses clear threats to both firms and the overall financial system, addressing culture reform across an entire industry is a complex challenge, and there is no one action or approach that will fully address it. The work bank supervisors do in this area is critical because there are limits to the regulatory or deterrence and enforcement approach. To understand how a firm manages misconduct risk—and to improve resiliency and reduce the potential for unwanted disruptions to financial intermediation—we must increase our focus on firms’ decision-making practices and behaviors as a core aspect of good governance. The views expressed in this paper are those of the author only and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

22 марта, 15:04

The Zacks Analyst Blog Highlights: Fiat, Nomad Foods, Prudential, InterContinental and RELX

The Zacks Analyst Blog Highlights: Fiat, Nomad Foods, Prudential, InterContinental and RELX

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20 марта, 22:46

Avoid Prudential, Add These Insurance Stocks to Your Portfolio

We have narrowed down to three bullish stocks to leverage investors' portfolio with a suggestion to offload Prudential (PRU) at the moment.

20 марта, 22:46

Avoid Prudential, Add These Insurance Stocks to Your Portfolio

We have narrowed down to three bullish stocks to leverage investors' portfolio with a suggestion to offload Prudential (PRU) at the moment.

20 марта, 16:51

3 Best Energy Mutual Funds to Add to Your Portfolio

Below we share with you three top-ranked energy mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy)

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16 марта, 17:00

Best of Lex: your weekly round-up

Flying taxis, UK/Russia, bitcoin, Clarkson, Cathay Pacific, Prudential/M&G and more

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15 марта, 17:01

Company News For Mar 15, 2018

Companies In The News are: SIG,MDB,PUK,CAL

15 марта, 03:48

Congress rides to the rescue of thriving bankers

Banks have hauled in record profits for the last three years, according to data they report to the FDIC.

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15 марта, 00:30

M&G has a long way to go after Prudential’s demerger of unequals

The UK and European unit has been cramping chief Mike Wells’s style

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15 марта, 00:00

Mortgage delinquency rates: A cross-country perspective

Mortgage delinquency triggered the liquidity crisis that turned into the Global Crisis. Ten years on, mortgage lending still accounts for a large share of both household debt and banks’ assets. This column examines the incidence of mortgage arrears using a dataset for 26 countries from 2000 to 2014. The results show that higher unemployment is associated with an increase in defaults, while higher house prices have a strong negative association with defaults. The analysis suggests that dealing effectively with mortgage default requires a mix of prudential regulation and institutional design improvements.

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14 марта, 21:40

Prudential split adds to shake-up of insurance sector

Separation of US-Asia division from UK arm is unlikely to be final move for the group

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14 марта, 18:34

What's to Like About Prudential Insurance Breakup

One of the longest running dramas in global insurance has finally reached its great reveal: U.K.-based Prudential has pressed the button on splitting itself in two.

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14 марта, 17:44

Stocks to watch: Dignity, Signet, Prudential, Shire, Ocado

Anglo American and other miners boosted as Goldman Sachs turns positive on the sector

14 марта, 15:55

Prudential зафиксировала рост годовой прибыли

Крупнейшая в Великобритании страховая компания Prudential представила финансовые результаты за 2017 фискальный год, в соответствии с которыми прибыль до уплаты налогов увеличилась с 3,21 млрд фунтов стерлингов ($4,47 млрд) или 75 пенсов на акцию годом ранее до 3,97 млрд фунтов или 93 пенсов на бумагу. Операционная прибыль, тем временем, возросла на 10% г/г и достигла 4,7 млрд фунтов по сравнению с 4,26 млрд фунтов годом ранее. Общая выручка компании также продемонстрировала рост и составила 86,56 млрд фунтов стерлингов по сравнению с 71,84 млрд фунтов годом ранее. Кроме того, компания сообщила, что выплатит окончательные дивиденды в размере 32,5 пенса на акцию по сравнению с 30,57 пенса на бумагу годом ранее.