Posts

How can a bank collapse? Ueno bank collapse in Paraguay and global lessons on politics of banking and risks

Image
A bank can collapse in two ways. First is the inability of the bank to repay deposits when customers demand. This situation is known as bank runs. Second is the decision of the regulator to close down the bank due to poor financial condition that reflects the inability to carry on business operations in an orderly manner.  Even in the case of a bank run, the bank will not collapse if the central bank provides liquid funds known as the lender of last resort to the bank and restore the customer trust in the bank. Therefore, a collapse of a bank is possible only if the regulator decides so. The collapse of Ueno bank on 2nd November is not a bank run in the market due to severe funding/liquidity problems. In fact, it collapsed as the central bank being the bank regulator decided to freeze the bank for resolution in terms of its regulatory play book. Instead, the central bank could keep the bank operating as usual without causing any public panic as standard concerns over bank's financi...
Post a Comment
Read more

Economic stabilization policies. Is the policy ideology trustworthy?

Image
  (An AI-created image) The macroeconomic slogan played nowadays by all policymaking authorities in Sri Lanka is that the economy has now been stabilised from the bankruptcy/crisis confronted in 2022 and, therefore, the stage is set for sustainable growth momentum in future. This story is common for all countries who suffered the same economic crisis in 2022 akin to the global corona pandemic. Skyrocketing of inflation, exchange rate and balance of payment deficit, the difficulty in public debt service and grave shortage of essential commodities were the major crisis outcomes.  The stabilization story entails raising interest rates and taxes and cutting fiscal spending and deficits on the tune of the IMF bailout package. These are the standard stabilization policy actions faithfully pursued around the world whenever countries confront such difficult economic situations which are known as economic instabilities. Such policy actions known as monetary and fiscal policies are the ...
Post a Comment
Read more

Economic poverty from loop to loop and to currency crises

Image
(A ChatGPT-created image)   Since the onset of the US war in Iran in early May, this year, almost all developing countries have commenced raising interest rates competitively by citing inflationary pressures as the single reason. However, all country authorities are well-aware of non-availability of any magical power of interest rates to control inflation.  It is not secret that they only raise interest rates to survive the modern poverty loop linked to foreign hot capital flows as nobody has alternative policy options to escape the loop despite the fact that it is the core structural economic problem confronted by these countries. The present poverty loop is its open economy version evolved from its closed economy version of low income-low savings-low investment-low productivity-low income, etc., also known as vicious cycle of poverty exhibited by old development economists. Development economics and old poverty loop Under the Bretton Woods agreement in 1944, the world moneta...
Post a Comment
Read more

Public debt management distracted beyond control

Image
(A ChatGPT-created image) Public debt management in almost all countries suffers same non-curable headache. Its prime symptoms relate to debt stock, maturity profile, cost, liquidity and market behaviour prevailing beyond control of the public. However, politics of debt management can carry diverse stories and narratives. At the dawn of the year 2026, the new debt management office of the government (PDMO) of Sri Lanka took-over the  75 years old headache of public  debt management carried out by the Central Bank from its inception in 1950. The Central Bank being the monetary authority of the country had the ample legal and operational teeth to mange both debt and monetary system behind the debt easily. The Central Bank's job was quite convenient as the monetary system established in 1950 to be administered and regulated by the Central Bank was built on public debt which is the outcome of the fiscal operations whereas the Central Bank also enjoyed some fiscal powers and coord...
Post a Comment
Read more