golos_dobra (golos_dobra) wrote,

there is no silver bullet to address the derisking problem


The Decline in Access to Correspondent Banking Services in Emerging Markets: Trends, Impacts, and Solutions
Lessons Learned from Eight Country Case Studies

Banks with large international operations are driving CBR terminations. Global banks, mainly from the OECD (for example, the United States and the European Union [EU], but also from Canada and Australia), have been the main banks closing CBRs. In 2015 in one country, 10 accounts were terminated by U.S. banks (from a total of 37), and all of those were in USD. Moreover, United Kingdom and Canadian banks terminated 14 percent and 17 percent of nostro accounts, respectively, in this country; another prominent U.K. bank terminated all its CBRs altogether. T

According to the World Bank, currently the global average cost for sending remittances is 7.32 percent while the International MTO Index is at 8.20 percent. Banks remain the most expensive type of service provider, with an average cost of 11.0 percent. Derisking practices by global financial institutions threaten to cut off access to the global financial system for remittance companies and local banks in certain regions, putting them at risk of losing access to the global financial system.

In Angola, six Angolan banks were previously routing foreign currency transactions via a bank in another country, and these services were terminated. Fifteen Angolan banks were also previously receiving their USD notes from the same institution and this service was ceased in December 2015, at the request of the notes supplier, a US bank. At present, USD notes are available through so-called down streaming and nested relationships between subsidiaries of Angolan banks in third countries (in the EU and Africa) and in others (Asia). CBRs denominated in USD are still vital to the Angolan banking system, given Angola’s dependence on international trade but actually it has been turned to euro.

The cost of doing business has also risen because the country has lost some relationships with international banks, which has in turn further weakened the nation’s financial system as it struggles with lower oil prices and high nonperforming loans. Because of the USD shortage, the import of food is particularly challenging given that 90 percent is imported. Almost every sector of the economy, including medicine supply, has been affected by derisking. Also, the problem of dollar supply has affected small entrepreneurs who do business with the Brazil, China, South Africa, and United Arab Emirates. The fact that certain operations now have to be denominated in euros increases the cost to the user. According to the authorities, inflation has also increased as a result. Angolan authorities and banks are trying to address the compliance concerns of U.S. regulators to normalize USD correspondent banking relationships

Informality has resurged in one place as a possible unintended result of derisking. The termination of CBRs for MTOs may be driving some customers to alternative banking solutions especially among countries’ expatriates. With the loss of familiar MTOs because of derisking, customers have two choices: (a) to use a new provider, with higher compliance requirements and potentially higher costs, or (b) to use an illegal supplier with no compliance requirements and a lower cost. Given those options, authorities in one surveyed country said many customers were moving to unregulated channels. In effect, derisking has affected clients’ ability to access regulated MTOs in some areas and has increased the cost of MTOs’ services. Therefore, some MTOs are losing customers who are now resorting to informal channels, especially hawalas, an informal money-transfer system in which an expatriate transfers an amount of money to an agent wherever they are based, and an equivalent payment is made in local currency in the receiving country. Hawala channels are cheaper, faster, and handle at least as much in remittances as banks, without foreign currency ever crossing the border


The third group of Fintech approaches to the derisking issue consists of attempts to redefine the existing correspondent banking architecture, often by using “cryptocurrencies” as “bridge assets.” In this framework, financial institutions maintain liquidity only in local currency and the bridge asset, with cross-border settlements occurring in that bridge asset. A number of different bridge assets have been proposed, from bitcoin and ether to product-specific cryptocurrencies such as XRP (promoted by Ripple) or Lumens (promoted by Stellar). Such efforts need to be treated, however, with caution. The viability of using cryptocurrencies to facilitate cross-border transfer will depend on the availability to convert cryptocurrencies and local

currency at will. It is not clear whether markets most affected by derisking are likely to sustain the required number of exchanges. Moreover, the high volatility of cryptocurrency exchange rates introduces additional market risks that would need to be managed. Finally, cryptocurrency exchanges are increasingly facing the same AML/CFT requirements as traditional financial institutions. In some cases, those requirements are even more stringent considering that in many jurisdictions cryptocurrencies are associated with illicit financial flows. As a result, their long-term suitability as alternatives to the traditional correspondent banking model has not yet been proven.


PNAS:Would the findings from this policy experiment extend to other countries?
Townsend:We are conducting this in Thailand, but there is a message here that is relevant for many other countries. We’re living in a world with Brexit. Spain is at a risk of fragmenting. We certainly have these debates going on in the US about protecting formerly industrialized areas and rural areas. I think geography plays a big part [in] understanding how these economies are put together. My appeal is to create these kinds of models for the US and other countries. Models have the advantage of tracing through what would happen under these policies without actually implementing the policy.


3. Risk and Return (Revisited): A big paper published this week. It’s nominally about farmers in Thailand, but it challenges common ways of understanding finance and inequality in general. The study holds important lessons but is fairly technical and not so accessible. The paper is “Risk and Return in Village Economies” by Krislert Samphantharak and Robert Townsend in the American Economic Journal: Microeconomics (ungated).

Why does poverty and slow economic growth persist? A starting point is that banks and other financial institutions often don’t work well in low-income communities. One implication is that small-scale farmers and micro-enterprises can have very high returns to capital -- but (or because) they can’t get hold of enough capital to invest optimally. The entire microfinance sector was founded on that premise, and there’s plenty of (RCT) evidence to back it.

Samphantharak and Townsend use 13 years’ worth of Townsend’s Thai monthly data to dig deeper. The paper gathers many insights, but here are two striking findings: The Thai households indeed have high average returns to capital but they also face much risk. Making things harder, much of that risk affects the entire village or broader economy and cannot be diversified away. As a result, much of the high return to capital is in fact a risk premium and risk-adjusted returns are far, far lower. That means that poorer households may have high returns to capital but they are not necessarily more productive than richer households (counter to the usual microfinance narrative). The action comes from the risk premium.

What is happening (at least in parts of these Thai data) is that poorer farmers are engaged in more risky production modes than richer farmers. Once risk premia are netted out, the picture changes and richer farmers are in fact shown to have higher (risk-adjusted) returns.

A few implications (at least in these data): (1) better-off farmers are both more productive and have more predictable incomes. So inequality in wealth is reinforced by inequality in basic economic security, the kind of argument also at the heart of the US Financial Diaries findings. (2) Poorer farmers face financial constraints, but not of the usual kind addressed by microfinance. The problems largely have to do with coping with risk. That might explain evidence that microfinance isn’t effective in the expected ways. (3) The evidence starkly contrasts with arguments made by people (like me) who argue that rural poverty is bound up with the inability to take on riskier projects.

Еще раз, по-русски, предельно четко и понятно, хотя эта постоянная в ходу тут максима никогда
не являлась гарантией для лжи и клеветы истолковать все написанное с точностью до наоборот.

Так вот, риск и более глобально для людей - смерть, есть удел нищеты.
Богатство гарантирует как страховку, так и жизнь вообще.
Богатые не потому богатые, что якобы “берут на себя риски”, нет,
они богатые как раз потому, что умело избегают рисков, оставляя эту делянку для нижних нищих.

Так было всегда, за исключением редкой исторической аномалии в двадцатом веке.

Сейчас идет процесс возращения к историческому абсолюту жизни.
Вот и термин подходящий уже отлили в чугун - дерискованность, для процесса перехода из
былого в будущее состояние бытия.
Или как лучше перевести derisking одним русским словом?
Отказ от рискованного бизнеса, то есть, три слова,
можно легко на русский тремя-то словами перевести,
понятно даже какими и без знания английского.

Вот и все по поводу этой, так сказать, дерисковизации бытия.
Ну а что, если раз сто повторить, уже и это слово кажется органично
входящим в русский язык. Как богатый Север глобального
мира изо всех сил пытается избавиться от бедного Юга и его проблем
путем перекрытия былых потоков труда и капитала, так очевидно и в
самих нищих и самых богатых странах как таковых внутри тоже будет водораздел между
“городскими” и “деревенскими” проходить все более актуально через
каждый квартал. Потому что особенностью нынешнего момента, как никогда,
является очевидный факт, что разрыв в благополучии внутри стран часто
и постоянно значительно выше чем разрыв между богатыми и бедными странами в среднем.

Кризис 2008-го был внутренним, кризис отказа состоятельных слоев
внутри западного мира продолжать делиться своим
благополучием с менее состоятельными слоями.

Нет никаких причин полагать, что кризис отказа делиться и в глобальном
масштабе будет менее значимым, просто в силу порядка величины подходящих
к возврату долгов, которые возвращать просто нечем в условиях
“финансовой прозрачности”.

In some cases, derisking has not in itself created a problem but has exacerbated an already existing problem.
The prime example is the use of cash, notably U.S. dollars, in certain countries or regions. The case of one country is particularly compelling. In 2014, one global U.K. bank that provided cash shipment services in this country left the entire region, leaving only one U.S. bank offering this service. The U.S. bank has prohibited its respondents in this country and the entire region from accepting cash deposits originating from foreign exchange traders and MTOs. Furthermore, the same bank has also put limits on the volume of USD-denominated cash to be deposited by its respondents. As a result, in an economy where tourism accounts for 30 percent of GDP, the limits on depositing cash in USD create piles of cash that cannot be deposited. Therefore the risk increases. Operators are either keeping the cash in their vaults or moving the money around using couriers, thus exposing staff members to assaults and to robbery. Some are also selling their USD surplus at a discount to informal traders.


Figure plots intermediary risk prices from different asset classes, together with the 95% confidence intervals. As shown, their test rejects the null of a 0% risk price in all classes, but cannot reject the hypothesis that the estimated risk price is equal to 9% per quarter (the value found in the all portfolios case which pools all testing porfolios together) for any of the individual asset classes, at the 5% significance level.

An interesting direction for future theory is to investigate different economic conditions under which debt or equity constraints are more likely to impact asset values, and to use this to guide construction of a more sophisticated pricing kernel that nests both mechanisms in a state- dependent manner. Ultimately, it is an empirical question whether our capital risk factor, the AEM leverage factor, or some combination of the two is the most useful representation of the pricing kernel.

These two results are contradictory because leverage, defined as assets over equity, is just the reciprocal of the equity capital ratio. That is, AEM find procyclical broker–dealer leverage while our paper suggests that the leverage of primary dealers is countercyclical

AEM focus on the security broker–dealer sector and associated book leverage ratios provided in the Federal Reserve’s Flow of Funds. We instead use NY Fed primary dealers and data on their holding companies from CRSP/Compustat and Datastream to construct the market equity capital ratio.

Consider, for example, our treatment of JP Morgan Securities LLC, which is one of the largest broker–dealers in the world and a wholly owned subsidiary of JP Morgan Chase & Co. Flow of Funds data would only reflect the financial health of the subsidiary. If the subsidiary suffers a large trading loss relative to the size of the subsidiary, it will be reflected as broker–dealer financial distress in the Flow of Funds. However, if other businesses of the JP Morgan holding company are thriving, financial distress in the broker–dealer subsidiary may be largely mitigated thanks to its access to internal capital markets. On the other hand, a sufficiently bad shock in one of the holding company’s non-dealer businesses (for example in its large mortgage lending activities) can potentially drive the holding company into distress. If losses are severe enough to impair internal capital flow, it will reduce risk bearing capacity in the broker–dealer arm even though the shock originated elsewhere and the dealer’s balance-sheet does not reflect ill health. In short, if internal capital markets are important sources of funds for broker–dealer subsidiaries, then financial soundness of the holding company may be a superior proxy for the intermediary sector pricing kernel.

Не пройдет и двух лет...
То есть даже такую казалось бы “городскую” в сравнении с прочими корпорациями, как JP Morgan, можно
под правильным микроскопом рассматривать в рамках двухсекториальной модели limited commitment и moral harazd, с
силой эффектов соответственно определяемой значимостью внутренних трансферов капитала из департамента займов на жилье
в лондонский трейдинг и обратно, с соответственно обрушением и, напротив, сравнительным ростом значимости
секторов даже ВНУТРИ одной и той же корпорации.

То бишь, мало того что идеи в статье впервые в науке позволили создать первую в истории
макроэкономическую модель с микро основаниями, так еще и прямой выход есть в industrial organization и
corporate finance, не говоря уж о традиционно унылом asset pricing, а также
общей антропологии с историей развития всего человечества.
Tags: derisking problem

  • Квантовая Гуманомика - 6: Золото Тихона Браги

    Времени все меньше, а материала еще очень много. Комментарии радуют, очень даже, но вы все еще даже близко не представляете куда это все завернет…

  • Квантовая Гуманомика - 5: Дураки во Вселенной

    Изначально эта часть должна была выйти в свет через пять-шесть прочих кусков, но вот решил изменить ход с индукции в дедукцию, кроме того часть…

  • Петля Тимошенко

    Обильные осадки в виде снега в Москве не пойдут как минимум еще две-три недели, а устойчивый снежный покров может появиться только к концу…

  • Post a new comment


    Anonymous comments are disabled in this journal

    default userpic

  • Квантовая Гуманомика - 6: Золото Тихона Браги

    Времени все меньше, а материала еще очень много. Комментарии радуют, очень даже, но вы все еще даже близко не представляете куда это все завернет…

  • Квантовая Гуманомика - 5: Дураки во Вселенной

    Изначально эта часть должна была выйти в свет через пять-шесть прочих кусков, но вот решил изменить ход с индукции в дедукцию, кроме того часть…

  • Петля Тимошенко

    Обильные осадки в виде снега в Москве не пойдут как минимум еще две-три недели, а устойчивый снежный покров может появиться только к концу…