Tag: writedowns

What do bank share prices tell us about growth?

What do bank share prices tell us about growth?

Owning shares in a bank is the functional equivalent of owning a call option on the bank’s future operational earnings, and if the share price contains little intrinsic value (i.e. the value of its assets does not exceed the value of its liabilities by a large margin, and may even be less than the value of liabilities), by definition most of its value consists of time value, and so is extremely sensitive to changes in expectations.

The impact of reform on growth in China

The impact of reform on growth in China

I got a lot of feedback from my January 5 blog entry because of my argument that the implementation of the reforms proposed in the Third Plenum all but guarantees that growth rates in China will slow down. For that reason I thought it might make sense for me to explain a little more carefully why I think this must happen, and why I think that we can almost judge how successfully the reforms are implemented by how quickly growth slows.

Why fiscal sustainability matters

Why fiscal sustainability matters

By Willem Buiter This post first appeared on Vox Fiscal sustainability has become a hot topic as a result of the European sovereign debt crisis, but it matters in normal times, too. This column argues that financial sector reforms are essential to ensure fiscal sustainability in the future. Although emerging market reforms undertaken in the aftermath of the financial crises […]

What happens to banks’ balance sheets during a downturn?

What happens to banks’ balance sheets during a downturn?

Credit underwriters pride themselves in their ability to cut lending when they sense that economic fundamentals have changed for the worse. For example one often hears bankers talking about passing on deals in 2007 because of “not liking the fundamentals” or “the markets looked stretched”. But historical data suggests otherwise.

Hidden debt must still be repaid

Hidden debt must still be repaid

Five or six years ago, a few skeptics first started pointing out that the credit dynamics underlying Chinese growth was creating an unsustainable increase in debt. This, they warned, would ultimately undermine the banking system and cause growth to collapse if it were not addressed in time.

The Eurozone is trying to repeat Japan’s lost decade

The Eurozone is trying to repeat Japan’s lost decade

The Eurozone’s banks are continuing to deleverage, with total loan balances to euro area residents now at the lowest level in 5 years. What makes the situation even more troubling is that many Eurozone banks banks are repeating the Japanese experience of the 90s. They are carrying poor quality and often deteriorating assets on their balance sheets, refusing to take writedowns that will require recapitalization.

Europe’s banks must be recapitalized

Europe’s banks must be recapitalized

Europe has been postponing the recapitalisation of its banking sector. This column argues that it has been doing so for far too long. Without such a recapitalisation, the danger is that economic stagnation will continue for a long period, thereby putting Europe on a course towards Japanese-style inertia and the proliferation of zombie banks.