Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

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Italy’s (Not So) Big Bad Bank Bailout

by Benn Steil and Emma Smith
image (latest)

Italy’s recovery from the crisis lags even the rest of laggard Europe. Its economy remains 8 percent smaller than in 2007; among EU members, only Greece and Cyprus have done worse.

Top of the list of challenges it faces is bank balance sheets clogged with €360 billion of bad loans, crowding out new lending. Around €40 billion of additional capital is needed to write down nonperforming assets to something approximating market value. Read more »

CoCo Nuts Have Been Hammered, but the Market Is Doing Just Fine

by Benn Steil and Emma Smith

Anxiety over whether Deutsche Bank would suspend interest payments on its contingent convertible bonds, otherwise known as CoCos, fueled a February selloff in the $250 billion market – as well as in bank shares broadly.  While Deutsche Bank has insisted that it will have no difficulty making interest payments, yields on CoCo bonds remain well above their levels at the start of the year – as shown in the graphic above. Read more »

Could China Have a Reserves Crisis?

by Benn Steil and Emma Smith
China reserves

Last summer, U.S. lawmakers were condemning China for pushing down its currency, arguing that it was still “terribly undervalued.” But those days may be long gone.  Chinese and foreigners alike have been stampeding out of RMB, leaving the Chinese central bank struggling to keep its value up and prevent a rout. Read more »

Rate Hikes or Balance Sheet Reductions? How Should the Fed Tighten?

by Benn Steil and Emma Smith
Fed tightening

This post originally appeared in Foreign Affairs online.

On January 27, the U.S. Federal reserve held interest rates steady and, in a modest nod to a market that has been consistently more fearful about the economy than the Fed itself, dropped a line from its December statement saying that the risks to the outlook were “balanced.” Read more »

Our Mini Mac Index Flame-Broils The Economist—Yet Again

by Benn Steil and Emma Smith

The “law of one price” holds that identical goods should trade for the same price in an efficient market.  But to what extent does it actually hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose. Read more »

How Low Can Mario Go?

by Benn Steil and Emma Smith

In September 2014 the European Central Bank lowered its deposit rate to an all-time low of -0.2 percent, after which ECB President Mario Draghi declared that rates were “now at the lower bound.” What he meant by this was that, by the ECB’s calculations, banks would find holding cash more attractive than an ECB deposit at rates below -0.2 percent, so there was no scope for encouraging banks to lend by pushing this rate lower. The ECB therefore turned to asset purchases, whose efficacy is much in debate, in an effort to ease policy further. Read more »

As Fed Pulls Back, the ECB and BoJ Add Trillions to Global Liquidity

by Benn Steil and Emma Smith
global liquidity - updated

All eyes and ears are on the Fed as it ponders its first rate increase in nine years.  IMF Managing Director Christine Lagarde fears a rerun of the 2013 “taper tantrum,” or what we have been calling a rate ruckus. Emerging markets are clearly vulnerable to renewed outflows, as capital chases higher yields in the U.S. and drives up the cost of dollar funding abroad. Read more »