• Fed chair to be named "At Apropriate Time"
• Roach slates Greenspan
• Fazio the butt of jokes
• ….Defends his honour stoutly
• …but may be losing the battle?
• Roll up for Greenspan farewell party!
• Ingves for Riksbank
• Oddsson for Iceland
• No rest for RBA governor in final year
• Anti-terrorism only minimally effective
• Somali central bank chief sacked
• Kyrgyzstan ’s central bank chief under house arrest
• Dookeran may lead Trinidad party  
• Former Bank of Japan executive dies
• No compromise, no negotiations says the old lady
• Dragging it out
• Sad times for Venezuela
• Banking on the Caspian

Fed Chair to be Named "At Apropriate Time"

George W. Bush has said last week that Alan Greenspan’s replacement would be named “at an appropriate time,” but he had not yet been given a list of prospective names:

“I personally haven't seen any names yet," Bush said. "I'll name the person at an appropriate time."
Bush said there was a group inside the White House which would "surface some names internally" and it also wanted to "reach outside the White House and solicit opinions" about who should replace Greenspan.

"The nominees will be people that, one, actually can do the job and secondly will be independent," Bush said. "It's the independence of the Fed that gives people not only here in America , but in the world, confidence."

FELDSTEIN LEADS

Newsmakers’ bet is on Martin Feldstein, who has that combination of academic prowess and worldly wisdom that rivals find hard to beat. At the recent meeting of the IMF and World Bank, most of the corridor talk favoured Feldstein.

VULTURES POUNCE

Now that Greenspan really is leaving, the vultures are getting ready to pounce on his legacy. That’s the way of the world. Greenspan’s predecessor, Paul Volcker, has survived his post-mortem with his reputation intact. Indeed, it has been given added lustre by Greenspan’s success – showing the defeat of rapid inflation was no mere flash in the pan. Nothing lasts forever, however, and America ’s addiction to deficits and debts will over time drag down even its greatest institutions. But like late Roman Emperors, Volcker and Greenspan will surely long be remembered for efficiently bolstering the empire’s crumbling defences (with the conscription of foreign mercenaries) and postponing the day of doom.

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Roach Slates Greenspan

Steven Roach of Morgan Stanley has been circling his prey for a long time. Now he has seized on Greenspan’s admission in a speech delivered on 27 September that “extended periods of low concern about credit risk have invariably been followed by reversal, with an attendant fall in the prices of risky assets”.

Is Greenspan admitting that the Fed’s prolonged accommodative monetary policy stance caused assets price bubbles over the last decade? Roach’s answer here is a loud “yes”.

“This is a stunning admission for a central banker who has long been against the targeting of asset values,” Roach thunders. “Greenspan’s most egregious policy blunder [was] failing to use the tools of monetary policy to nip the first bubble in the bud back in the late 1990s”.

And he does not stop there: Greenspan’s mistakes will make his successor’s task difficult if not unfeasible.

“Courtesy of bubble-induced distortions that Greenspan condoned, today’s saving and current-account disequilibria dwarf anything that a new chairman has had to face in the past”.

….Defends his honour stoutly

On October 10, however, Fazio released a memorandum stoutly defending his role in favouring the Italian bank, BPI, over its Dutch rival ABN Amro in the controversial takeover struggle for Banca Antonveneta. He stressed that the Bank of Italy’s assessment of BPI was “tackled with full awareness and seriousness, and without discrimination and favouritism”. He strongly denied that he was trying to stop ABN Amro’s bid because of its nationality but said here were doubts about its long-term commitment to Antonveneta’s business base in north-east Italy .

He stated that after the Italian market regulator, Consob, found evidence that BPI’s managemenent and its allies had been acting illegally together to buy Antonveneta’s shares, the Bank of Italy had started sanctions procedures against them..

Italian prosecutors disclosed in late September that they had placed Fazio under investigation on August 1. He was personally questioned by prosecutors for the first time on October 10.

…but may be losing the battle?

But he suffered yet another blow when reports surfaced that the ECB was preparing to criticise his role in the takeover affair.

Meanwhile, the overdue reform of the Bank of Italy’s legislation including a seven-year non-renewable term for the governor and provisions to clip his wings was passed by the upper house of Italy ’s parliament.

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Roll up for Greenspan farewell party!

Finance ministers and central bank presidents from the G7 nations have ensured Alan Greenspan’s departure will not go unnoticed with a special session scheduled for December in London as a farewell party. This is a lovely excuse to avoid going to Russia in December – Russia is the chair of the G8 next year and would normally host the first session. A Greenspan knees-up in London over Christmas somehow appealed to people a little more.

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Oddsson for Iceland

The Central Bank of Iceland has appointed Daví Oddsson governor and chairman of the Board of Governors. The move followed Birgir Ísleifur Gunnarsson’s decision to retire.

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No rest for RBA governor in final year

According to this article published on Thursday 22 September, Reserve Bank of Australia governor Ian Macfarlane has one last tricky year to negotiate before bowing out as one of the country's most successful central bank chiefs.

Anti-terrorism only minimally effective

Writing in the new publication “ How to Combat Money Laundering and Terrorist Financing – The Regulator’s Guide ” Jimmy Gurulé, who was instrumental in developing the US Treasury’s anti-terrorist-financing strategy, claims that it has been successful, but only minimally.

To successfully disrupt terrorist financing efforts, he writes, economic sanctions need to be better enforced. Lists of suspected terrorists are of little use if there is no mechanism for ensuring that their assets are frozen. States and financial institutions should have to certify that they are taking the necessary steps to freeze terrorist-related funds, and institutions that fail to freeze assets of people on UN lists should be hit with heavy fines.

The new publication which Gurulé writes in will assist regulators in designing a successful anti money laundering regime, complying with international standards and implementing them effectively, and it will help them to avoid being blamed for failures. It is edited by Richard Pratt, former director general of the Jersey Financial Services Commission, and now a regulatory consultant conducting assessments of anti money laundering systems around the world.

Other contributors include: John Aspden , chief executive of the Financial Supervision Commission in the Isle of Man; William Rybeck , deputy chief executive of the Hong Kong Monetary Authority; Barry Johnston and Terence Donovan , International Monetary Fund; Giuseppe Maresca , director general of the financial crime department, Italian Ministry of Finance; John Moscow , former prosecutor in the New York District Attorney's Office; and Hans-Peter Bauer , chairman of the Wolfsberg Group and former head of regulatory relations at UBS.

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Somali central bank chief sacked

The president of the Transitional Federal Government of Somalia, Abdullahi Yusuf Ahmad, has fired the governor of the Central Bank of Somalia, BBC Monitoring reported from a report on the Shabeelle Media.

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Kyrgyzstan ’s central bank chief under house arrest

The governor of the National Bank of the Kyrgyz Republic , Ulan Sarbanov, has reportedly been placed under house arrest, and accused of abuse of power during the rule of deposed president Askar Akayev. It seems that very little if any prima facie evidence has been presented to justify this action.

“(The prosecutor general has taken) a decision, effective from September 2, to put the National Bank governor under house arrest in relation to handing out more than $400,000 to the former Kyrgyz president in 1999,” Sumar Nasiza, spokesman for the prosecutor, told journalists.

Sarbanov denied any wrongdoing. “I consider these accusations unfounded,” he told journalists while leaving the prosecutor general’s office.

Sarbanov spoke to reporters about his present activity: "I do not sign the official documents, I appointed the acting chairman of the bank".

"Accusations against me are unreasonable and illegal. I am interested, that this case to be considered at court as soon as possible", Sarbanov declared.

Yet by all accounts, Sarbanov is just the kind of young, positive, western-trained banker that such a poor country, struggling to emerge from decades of dictatorship, should be encouraging. What are the international institutions, in a country highly dependent on aid, doing about this apparent scandal?

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Dookeran may lead Trinidad party  
The former governor of the Central Bank of Trinidad and Tobago , Winston Dookeran, may become leader of the main opposition party in Trinidad after the incumbent announced he would not be running for the post again.

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Former Bank of Japan executive dies

Toshihiko Yoshino, a former Bank of Japan executive director and a noted economic critic, died of pneumonia at a Tokyo hospital on 12 August, the Asahi Shimbun and Nihon Keizai Shimbun newspapers reported this week. He was 90.

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Dragging it out

Has the Bank's resolve has been stiffened by the process of preparing the case? There were those in early days of this case who feared Mervyn King, the governor, would distance himself and the new team from the proceedings. But far from it.

Over a period of many months, senior supervisors, including former governors, some of whom are aged and infirm, have spent days and months commuting to Threadneedle Street to prepare their evidence and pore over reports and memos written 20 and even 30 years ago.

Peter Cooke, a former head of banking supervision, is now being told by Gordon Pollock, QC for the liquidators, that he could spend an unbelievable 16 weeks on the witness stand.

The trial began early in 2004 and has already cost tens of millions of pounds in legal fees.

For long-suffering public servants to be dragged from retirement to face such inquisitions in the High Court has been a cruel spectacle and an experience that has made them and the present management of the Bank even more determined to defend their honour:

“We have always made clear that there would be no deal and no negotiations”, is the line from the Old Lady.

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Sad times for Venezuela

Hugo Chavez, the president of Venezuela and an outspoken critic of the Bush administration, has warned that due to a deterioration in bilateral relations between the two countries, the US could “confiscate” some of Venezuela ’s assets in the future. He has therefore ordered that assets be moved out of dollars and into assets denominated in other currencies and held at the BIS.

Jose Guerra, who until recently headed the central bank’s economic research department, said that the reason for the move away from dollars was “eminently political” and provided “a further example of the central bank’s loss of autonomy.”

But this is only one aspect of the erosion of the central bank’s autonomy. Another is the government’s seizure of central bank reserves, which have risen dramatically in recent years, in part due to high oil prices.

Earlier this year a law was passed allowing the government to spend $6 billion of international reserves. Saying that the country had more reserves than it required for conventional purposes, Chavez argued that the money would be better used for social programmes. The scope of these so-called “programmes” has come to include the purchase of at least $1 billion in Argentine sovereign debt.

All this may have implications outside Venezuela . As the accumulation of foreign reserves has become a feature of international finance in recent years – the most recent IMF figures suggest that as much as 80% of countries have increased their reserves over the past 12 months – many governments are eyeing them enviously. Economists bang on about “excessive” reserves. What are they doing sitting there on their central bank’s balance sheet? Chavez stands accused of grabbing the central banks assets for his own political gain. This is hugely damaging both for the government and the central bank. But more quietly other governments may be tempted to follow suit.

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Banking on the Caspian

How many countries could one day follow in Turkey ’s wake into the European Union? Already, bankers and investors are certainly increasingly interested in the other region where Turkey already plays a vital role – the huge area to its east. An opportunity to monitor trends in this region is afforded by the third Caspian and Central Asian Banking and Finance Summit on 9-10 November, which will be attended by representatives from the private and public sector from eleven regional countries, as well as others interested in the rapidly developing banking sector in the area.

Several central bank governors will be attending the summit, and Newsmakers will also be there; go to http://www.medrose.com/events.htm

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