Jackson Hole redux
Last night, as part of The Risk Telescope, I voiced irritation with the Kansas City Fed’s lack of transparency regarding papers commissioned and presented at the Jackson Hole conference. It seems I was not the only person frustrated by this old-fashioned policy.
FT Alphaville reports that the entire program (speaker list; participant list; PDFs of presentations) has now appeared on the Kansas City Fed website. You can access those papers now. There are 12 papers/PDFs/links on the website. Before today, only half of those (6) were available publicly. The process of finding them was tedious. One had to piece together who had spoken from media reports and then go to individual websites to find the documents. Not all documents prepared by academics were available publicly yesterday…but of course all speeches by policymakers in positions of authority (e.g., Bernanke; Trichet; Lipsky) were available.
Of course, readers of The Risk Telescope have already received analysis of the six papers that were available independently yesterday. They will receive analysis of the remaining papers in the next day or so. Don’t hesitate to let us know if you want to join the community of financial professionals tracking these important issues.
Receive the rest of this post by Subscribing to the Risk Telescope Jackson Hole: monetary and macroprudential policy in the spotlight
In today’s wired world, it is stunning to see the world’s leading central bankers and their invited guests spend a weekend in Wyoming discussing the economic and regulatory policy issues of our day with so little transparency. True, some speeches are published by individual speakers. But the full agenda, participant list, and all delivered papers are not available from the Jackson Hole conference sponsors (U.S. Federal Reserve Bank of Kansas City) until months after the conference has ended. Journalists attending the sessions have shared sparingly their observations of the discussions and papers discussed over the weekend. Whether such an approach can continue much farther into the 21st century is a topic for another day.
The dearth of published remarks has a silver lining. It forces us to look at other puzzle pieces published in the weeks before the Jackson Hole conference by leading policymakers who were presumably at least invited to attend the Kansas City Fed conference. The broader perspective yields a different analysis than that presented in the media over the last 72 hours from Wyoming. The media and markets have focused almost exclusively on the remarks of one speaker (Federal Reserve Chairman Bernanke) on quantitative easing prospects in the United States. But those remarks are nearly silent on the vigorous debate underway within the central banking community on the intersection and implications that “macroprudential” regulatory policy can have on the formulation and signaling roles of monetary policy.
This issue of The Risk Telescope analyzes the Jackson Hole public speeches in light of policy signals sent by international policymakers over the last few weeks on the intersection of macroprudential and macroeconomic policy. The inescapable conclusion is that the process by which central banks constrain (or supply) credit availability is broadening dramatically beyond the interest rate channel.
On this point, consensus seems to exist across a range of policymakers and seems certain to ensure that key components of the Basel Committee’s proposed new regulatory framework (Basel 3) will not shift materially in the coming weeks. The bigger questions regarding the precise construct of the new policy tools as well as the balance of authority and responsibility between fiscal authorities and financial regulators remain open for debate. This issue of The Risk Telescope explores that debate in some detail. The implications for the design of financial instruments, risk management and, of course, economic growth are massive.
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New approaches to #finance, #risk management and #economy analysis
“Moreover, because of the complex and broader involvement, real and perceived, of governments in the economy, separating policy signal from noise, and execution versus intent, has become as important as – but harder than – forecasting the macro data.” Richard Clarida & Mohammed El-Erian, Financial Times, 3 August 2010
The quote above from today’s Financial Times shows concretely the necessity of adopting a new approach to risk management, economic analysis, and strategic asset allocation focused on the impact that policy (and, thus, mercurial human decisions) can have. It is a point we have underscored to clients since BCM International Regulatory Analytics was founded in December 2008.
The point is simple: a mechanical, quantitative assessment of risk based on historical data is insufficient to guide assessments of the key risks facing senior executives today at financial firms and corporations. Undertaking this kind of analysis is hard, as the quote indicates, because only practical experience at the nexus of politics and business can provide the basis for interpreting the policy signals and their likely impact on different sectors of the financial markets. This is nothing less than a revolution in the world of quantitative finance and risk management… it is what we do every day at BCM International Regulatory Analytics LLC.
Large financial firms and their service providers have always had the institutional capability and human capital to interpret subtle global policy signals. This has been a staple of risk management and asset allocation for a generation at the top-tier firms, benefiting both shareholders and investors alike. It is the value of experience put to work to help make smarter decisions based on facts and knowledge. Modern technology harnessed by BCM International Regulatory Analytics makes it possible for this kind of analytics to be available to a broader universe of financial and corporate professionals seeking to stay ahead of the policy curve. You don’t have to be a large firm to acquire the analytical tools necessary for implementing the approach described by El-Erian and Clarida.
The quiet days of August provide a good time to reflect on whether your existing internal and external analytics services are providing the ability to see around the corner and anticipate tectonic shifts in the economic and regulatory policy space. Are they answering these questions:
- What will be the focus for the November G20 summit?
- How will the G20 agenda affect the scope and substance of credit intermediation for financial firms and corporates at both a granular level and the strategic direction level?
- What are the economic policy implications associated with a regulatory focus on ” macroprudential” policies? What are the regulatory policy implications associated with increased emphasis on economic factors when assessing “macroprudential” and systemic risk?
- How will IT infrastructure be changing in the next few years in light of G20 activities?
- Why is Basel 3 still ground-breaking despite some retrenchment last week? What do those 9 pages of technical changes suggest for the allocation of bank capital and liquidity in the near- to medium-term? How will these changes to the regulatory capital and buffer system affect access to credit for corporates and the shape of economic growth? What are the sovereign risk implications of the proposed Basel 3 treatment of liquidity risk?
- What are the implications for risk management and financial stability policy formation associated with a potential rebalancing of political power inside the IMF?
- Are the US and Europe driving towards a transatlantic regulatory policy split in the financial sector, or are they trending towards convergence to a new norm?
- How will the economic environment constrain regulatory policy choices (and vice-versa)?
If you cannot answer these questions right now, then the time is right for a strategic reconsideration of your information needs. Subscribers to The Risk Telescope and Analytics clients already have the answers to these questions, and have had them for weeks if not months. The answers are sometimes counter-intuitive. Moreover, the situation is fluid and will remain so for a number of years still. More importantly, as the G20 process grinds on, it will become more technical and less susceptible to front-page treatment. Only true experts in global policy will be able to provide the tracking and interpretive tools required to stay on top of these issues.
Our proprietary analytical approach at BCM International Regulatory Analytics (based on almost two decades of experience in US, EU, and global regulatory policy processes) generates tools to distinguish between the noise of the news cycle and real, fundamental shifts. Our fact-based analysis prepares clients to make strategic judgments concerning direction, risk profile, and IT spend based on a proprietary research method. We provide the texture and context necessary to facilitate holistic analysis of the data used and outputs generated by risk management models. It is an approach increasingly adopted by the most sophisticated investors, as the FT quote above demonstrates with elegant prose.
BCM International Regulatory Analytics provides a growing number of senior executives with the tools they need to interpret sometimes subtle shifts in global policy direction that will have a real impact on their business models and the climate in which they will operate for the next decade. If the largest and most sophisticated investors like PIMCO and our existing clients are adopting this analytical stance now (as suggested in the quote at the top of this blog entry), how can you afford not to do the same for a fraction of the price associated with building a comparable internal capacity?
