RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

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Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Categorized | Economy

Low interest rates ‘threaten financial stability’ – Riksbank

Posted on November 23, 2016

Sweden’s central bank is showing no intention of ending its policy of record low interest rates (far from it), but it has once again warned that the government needs to take action to offset the risks its monetary policy is creating.

The Riksbank is worried about rising public debt levels and vulnerabilities in the banking sector that are being exacerbated by its repo rate of -0.5 per cent, which it has maintained in an attempt to boost inflation.

In its semi-annual financial stability report released today, the Riksbank said rates are “expected to continue to be low in the years ahead”, despite the chance they can encourage “excessive risks” among investors.

Even if an increased risk-taking is partly an intended effect of the monetary policy being conducted, it may increase the vulnerability of the financial system, which may ultimately threaten financial stability. This would particularly be the case if risk-taking were to become excessive without being counteracted by measures within other policy areas. For example, excessive risk-taking may lead to assets becoming overvalued and risks incorrectly priced.

The low cost of borrowing has seen Sweden’s household debt to income ratio rise to almost 180 per cent, with 30 per cent of households with mortgages now having a debt to income ratio of over 400 per cent, according to the Riksbank and Statistics Sweden.

The banking sector, meanwhile, is considered to be particularly “sensitive” to economic shocks, despite Swedish banks performing relatively well compared to their international peers. Although they currently enjoy a relatively low proportion of non-performing loans, a mismatch between maturities on their funding and assets puts them at risk of a liquidity crisis in the event of an economic shock.

The banking system is large, interconnected and has a high proportion of wholesale funding combined with a low proportion of capital in relation to its assets. There is a strong link between the banking system and the Swedish housing market, as the major banks have a large and rising proportion of mortgages on their balance sheets. These structural vulnerabilities make the banking system sensitive to shocks linked to e.g. household indebtedness.