February 2007

Currencies round-up

5 February 2007
The incredible shrinking yen extended its inauspicious journey downwards as 2006 turned into 2007 and the guessing game as to the future path of Japanese monetary policy continued unabated. Japan, which fought its way out of recession five years ago, is currently undergoing its longest economic recovery since the end of the 19th century. However, while long-lasting, the recovery has hitherto proved to be shallow, allowing the Bank of Japan to make just one tentative quarter-point rate rise in July. Despite some talk of a follow-up hike in December, the year ended with Japanese rates still at a generous 0.25%, a rate too tempting for the world’s army of carry trade investors to resist, as they borrowed yen to spend on more lucrative assets.

Balancing The Eurozone Budget

5 February 2007
The fiscal position of most Eurozone states has improved significantly over the past couple of years. Recent data from Germany showed that the fiscal deficit tumbled to 2% of GDP in 2006, the first time it has been below 3% since 2001. French public finances are also set to show a sub 3% deficit for last year. Meanwhile, although the Italian deficit is set to be a whopping 4.8% in 2006, this has been inflated by the government having to reimburse some VAT payments related to company car schemes. Excluding this, the shortfall would have been a more palatable 3.5%.

Strategies for Success

5 February 2007
Marilyn H. Spearing joined Deutsche Bank in June 2006 on a stellar 25-year career path featuring highly successful tenures in a number of senior positions with both HSBC and Barclays. With a remit covering cash management and trade finance within Deutsche Bank’s Global Transaction Banking area, Marilyn, who works out of London and Frankfurt, also currently serves on the Board of SWIFT. When talking to Marilyn recently for FX&MM, I began by congratulating her on to the news that Deutsche Bank has just been announced as having ranked number one in the highly respected Treasury Strategies poll of top transaction services providers, where Deutsche Bank outperformed its nearest competitor by an impressive margin.

Operational risk in 2007: REALITY BITES!

5 February 2007
Amid all the noise surrounding various regulations, 2006 has been a waiting game for many banks, a trend that will continue over the next 12 months. David Carruthers director of the IBIS division of Financial Objects, explains. Banks have succeeded by assessing and managing risk for many years. What is new, however, is that Basel II explicitly factors operational risk into the calculation of total capital requirements. And it does so with a very important twist: The more effective a bank’s operational risk management effort is, the less money it needs to set aside in reserve. That's a powerful, bottom-line incentive to correctly handle operational risk management, although this strengthening of risk management does not come without cost.

The Netherlands Focus

5 February 2007
According to the World Economic Forum, the Netherlands is Europe's fourth economy as to competitive strength. Only Denmark, Finland and Sweden score better. The Netherlands does better than the United States, measured against the Lisbon criteria. The Netherlands has moved up one position compared to the previous “Lisbon Review” of the World Economic Forum. In March 2000, the heads of government agreed in Lisbon to make the European Union the most competitive economy in the world. This is also called the “Lisbon Strategy.” The World Economic Forum studies how the countries score on a number of criteria that are part of this “Lisbon Strategy.” The Netherlands owes its high score to a second place in the fields of knowledge-based society, liberalisation and investment climate (including easing the administrative burden). The score is somewhat lower on the creation and liberalisation of network industries, financial services and sustainable growth.

To buy or build?

5 February 2007
Whether to buy a ready-made system or build one from scratch, or from purchased components and toolkits, is still a crucial dilemma for banks. With so many spot FX trading systems available for white labelling and the growing number of trading services and systems that can be supplied via an ASP, few banks today are building FX trading systems from scratch. Also, an increasing number of banks have stopped short of building FX derivatives systems, despite the fact they are still building new systems for other areas, because FX derivatives are also becoming more commoditised and there is no clear competitive edge to be gained through building.