The bank, announced at the summit in Fortaleza, Brazil, will also have a monetary twin to provide short-term emergency loans, the Contingency Reserve Arrangement. While the bank will be open to all UN members, the reserve will lend only to the contributing BRICS countries in times of crisis. Impact of the New Brics Bank
Our correspondent Andreas Frank writes: UBS AG booked a near $300 million charge in the second quarter mainly to settle claims it helped wealthy Germans to dodge taxes, the latest in a string of lawsuits that have targeted its private banking business.
Back in late 2012, German state prosecutors in the city of Bochum begun an investigation into UBS clients on suspicion of personal tax evasion. UBS were just one of several Swiss banks that formed part of the probe and it took the opportunity in its latest quarter to finally settle with the German authorities and resolve the issue.
The Zurich-based lender’s offices in Germany were searched last year as part of a probe sparked by a CD with details of UBS clients that was purchased by the German state of North Rhine-Westphalia (NRW).
UBS, which faces a separate probe in Germany and similar probes in Belgium and France, took a 254 million Swiss franc charge and said it aimed to have all its German clients come clean by year-end, from more than 95 percent.
Yet the charge is only one of a slew of legal issues with which the bank is contending. It hiked its provisions against future litigation to nearly 2 billion francs but warned this might still not be enough to cover possible fines and charges.
The bank has taken a strategic decision to scale back its risky investment banking operations in favour of private banking and asset management, but remains under threat from possible past market transgressions.
The settlement in the German tax case comes less than a week after a 15-month French inquiry into UBS escalated, with the bank put under formal investigation on allegations it laundered the proceeds of tax evasion.
UBS was ordered to stump up a 1.1 billion euro ($1.5 billion) guarantee payment, which it called “unprecedented and unwarranted” and will appeal.
Switzerland effectively ended its long-cherished banking secrecy in May by agreeing to join other countries in sharing tax information, once a standard method of sharing is agreed.
Meanwhile, Swiss banks have spent years attempting to clear their accounts of undeclared accounts under massive international crackdowns on tax evaders.
The legal problems have overshadowed a near two-year overhaul to shrink UBS’ investment bank, abandoning riskier activities in its bond trading arm. The ultimate goal of its restructuring drive is bigger dividends. UBS aims to return at least half of its profits to shareholders if it can maintain capital – which stands at 13.5 percent under new global rules – at or above current levels through to the end of 2014 and achieve a ratio of 10 percent when applying its own stress tests.
Profit at its private bank plunged 43 percent on the cost of the German settlement. The unit, which is measured by its ability to win fresh funds from new and existing clients, took in 10.7 billion francs in net new money.
Swiss bank UBS saw 15.4 percent growth in its wealth management business for 2013, firmly securing its position as world leader in the sector, with close to $2 trillion of assets under management.
If growth continues at its current rate, the bank – which currently runs $1.96 trillion – will become the first wealth manager to hit the $2 trillion “milestone”. This would mark a transition in the scale of global wealth management.
Database 
There are good reasons for Russian companies to locate in the Netherlands. The first is well known: taxes. Netherlands has tax treaties with more than ninety countries and a tax regime that allows tax-free money to flow through the Netherlands.
The Netherlands is also attractive because their legal system provides unique protection against the wrath of Putin. This was particularly evident in recent years in the settlement of the bankruptcy of what was once Russia’s largest oil company was: Yukos Oil.
Between 2006 and 2013 an obscure legal conflict between the Dutch branch of Yukos and its Russian curator was fought in the Dutch courts. The Supreme Court decided this conflict end of 2013 in favor of Yukos Oil.
Yukos Oil was the oil company of Russian oligarch Mikhail Khodorkovsky. Khodorkovsky was one of the richest Russians in the nineties, when Russia was known as the Wild East. He had received oil concessions after the fall of communism. His bank Menatep was supposed to organize the state auctions for oil concessions, but strangely enough, only one bidder appeared at the auction.
When Putin came to power, Khodorkovsky accused the new president – ironically – corruption. In 2003, Khodorkovsky was arrested on suspicion of tax fraud. Eventually, he was sentenced to eight years in prison and was Yukos Oil – or what was left of it – was declared bankrupt in Russia. But a significant portion of the assets of Yukos Oil was still stuck in a Dutch company: Yukos Finance BV. The Russian administrator tried to sell these Dutch possessions.
The Yukos bankruptcy court and the Dutch were, according to tax expert Ronald Holtkamp JDsupra, ‘a great stimulus for the influx of Russian companies in the Netherlands.”
The presence of so many shell companies also creates opportunities for stronger sanctions. Since so many assets of Russian companies are structured in the Netherlands, freezing of assets or other financial measures would disrupt finance in the Netherlands.
The U.S. sanctions were still significantly more stringent. For example, on the U.S. list were all the names of the largest oil producer Rosneft, the second largest gas producer Novatek and the third largest bank Gazprombank. All companies allies of Putin lead. In addition, the U.S. also focused on people like Timchenko, who are not yet on the European list.
For the U.S. it is easier to sanction because they have a limited economic relationship with Russia. But vervlochtendheid of Netherlands and other continental countries, Russia is huge. In particular, the dependence on Russian gas makes a confrontation with Russia economically painful.
The European foreign ministers nonetheless accelerated expansion of the sanctions list with more people and businesses. The European ministers also threatening further sanctions which certain sectors of the Russian economy, such as defense and financial markets if Russia takes enough away from the Ukrainian separatists.
That is no idle threat. The European economy may be economically dependent on Russia, Russian companies can be crippled due to their mailbox operations at a financial blockade Netherlands. Not for nothing did the German newspaper Die Welt noted that ‘if there is one country on which sanctions can cause pain it is the Netherlands.”
Brazil, Russia, India, China, and South Africa have founded a $100 billion ‘New Development Bank’ that will lend to members and other developing countries, a potential alternative to the Washington-based World Bank.
China and four other emerging market nations are setting up their own development bank and currency reserve to challenge the Western-dominated international financial system.
Frustrated by the failure of the World Bank and the International Monetary Fund to give them a bigger say, the five BRICS nations launched a $50 billion bank to fund infrastructure projects and a $100 billion money pool to help members cope with liquidity crises. The bank will be headquartered in Shanghai, Brazil, Russia, India, China and South Africa, who count for a quarter of the global economic output.
The New Development Bank, due to start making loans in 2016, shows developing countries “flexing their muscles” and providing “healthy competition” to the World Bank and IMF, widely seen as insensitive to poorer countries’ priorities, says Stephany Griffith-Jones, an international finance expert at Columbia University in New York.
In a rebuff to China’s efforts over the past two years negotiations to win a dominant position for China in the new bank, BRICS leaders announced Tuesday at their summit in Fortaleza, Brazil, that all five countries would contribute equally to capitalizing the bank.
“This is not a hegemony,” Brazilian president Dilma Rousseff told reporters, explaining that an Indian will be the first to occupy the bank’s rotating presidency. It will be at least 15 years before China holds the top post.
China did persuade Brazil and India to locate the bank’s headquarters in Shanghai. “Shanghai is a financial center, an international city, and China has a lot of experience in building infrastructure, which is what the new bank is mainly for,” says Zhu Jiejin, who teaches at the Center for BRICS Studies at Fudan University in Shanghai.
Beijing will have more clout in the currency reserve, to which it will contribute $41 billion of the $100 billion total. South Africa will put in five billion dollars and the other three countries $18 billion each. The fund will cushion the sort of balance of payments crises that developing countries might face in the event of rising US interest rates that would likely trigger capital outflows from emerging markets. China isn’t likely to get caught short: It has nearly $4 trillion in foreign currency reserves.
Developing countries complain that IMF emergency loans often come with harsh austerity measures that are politically risky and not always appropriate. The New Development Bank is expected to be more understanding of its clients’ concerns.
The BRICS leaders said they were “disappointed and seriously concerned” that the IMF had not implemented governance reforms, agreed in 2010, to better reflect the increasing economic weight of emerging market countries. The US Congress has refused to ratify those reforms.
The new bank may eventually be able to lend $34 billion a year by 2036, provided that it is adequately capitalized. Though that would come nowhere near bridging the one trillion dollar annual shortfall in infrastructure investment in developing countries that the World Bank estimates, “it would be a start,” says Zhu. “At any rate one thing is certain,” he adds. “We now have more choice for infrastructure financing, not just the World Bank.”
Senator Elizabeth Warren has suggested giving the post office a banking function in the US. Already they supply money orders. In England, basic bank accounts are offered. In the UK a million people can’t get a regular bank account. But there is a solution called a ‘basic bank account’. This product is designed for those with poor credit scores.
As the name suggests, a basic bank account offers a place to store your money and pay your money from, without overdraft facilities or any in-credit interest. Most basic bank accounts will give you a debit card, so you can make payments in shops and online, and all allow you to set up direct debits – which is great, as this can make bills cheaper than paying by cash or cheque.
Overdraft charges occur when you attempt to make a payment and don’t have enough money in your account. This is called a transaction fee even though no transaction has taken place.
UK banks don’t publicize these accounts because there is a use charge built in, and most other accounts don’t have this, so they can be called ‘free.’ Also, banks can’t’ make money on these accounts unless you try to use more money than you have.
What Warren is calling for in the US, and Silicon Valley may consider as they look into the banking business, is a way for lower end customers to bank.
Make no mistake. Elizabeth Warren is a middle of the road progressive. Her central mantra is clear and uncontroversial: if you work hard and play by the rules you should be able to succeed. Given the PIketty formula, r>g, it is unlikely that this can happen. Warren wants to make sure America returns to its origins as a land of opportunity. Here she is in a recent article. Reining in Big Banks
We interviewed Teachout over two years ago and her article on the idea of corruption in the US constitution is available on the site. The Anti-Corruption Principle.
Teachout originally supported Governor Cuomo, but has been deeply disappointed. While it is unlikely that she can win, she casts light on issues important to many Americans. Elizabeth Warren may serve this function too. Or perhaps she will play a bigger role in 2016. Both women are extremely concerned with banks that are too big to fail. Teachout for Governor of New York
Anat Admati and Martin Hellwig, whose seminal book “The Banker’s New Clothes” outlines with clarity why the banks prefer using debt to using equity, make the case for using equity ratios as the criterion for solidity, not the Basel asset percentages. This easily grasped scenario dramatically suggests the implications for the ordinary banking customer and for our country.
If you buy a $100,000 home and put down $3000, if your home’s value increases by $4,000 you will have made a 133% return on your investment. If you funded the home with more equity, say a down payment of $20,000, your return would be only 20%. If your home decreases in value, it would take only a $4000 decrease to put you underwater.
This is the gift to banks given by the Dodd Frank legislation. Depositors are induced to place their money in the bank, where it is safe. Depositors can also go out to third parties with a presumed guarantee of backed up money. The banks do what they want with that money. In the past decades that has involved incredibly risky propositions like securitized mortgages and plays on interest rates. Federally guaranteed deposits up to $250,000 protect the depositor and the bank. Taxpayers pay for the banks follies, however. In TARP, the taxpayers were left holding the bag. Depositors in Cyprus paid a particularly high price.
The Admati-Hellwig proposal for demanding higher bank equity ratios to make these institutions more secure has been met with fear and scorn by the big banks. The banking lobby courted legislators creating the Dodd Frank bill assiduously to insure that only the Basel ratios would be implemented.
Banks have always argued that they would be forced to lend less if equity ratios were higher. But this is only marginally so, and seems a small price to pay for the soundness of our banking institutions.
Interestingly, Admati had lunch with President Obama this week. While the President is no master of economics, as he begins to craft his legacy, he may be looking for bold and yet sensible moves that will help the economy. If explained from the bully pulpit of the Presidency, equity ratios could bathe the President in a gold aura. Let’s hope so.
Note: Hillary Clinton, frontrunner for the Democratic Presidential ticket in 2016 is very much a captive of the banks.
MaRs, an internal network for macro-prudential research, was launched in Spring 2010 by the European System of Central Banks, which consists of the 27 European Union (EU) national central banks and the ECB.
The financial and economic crisis that started in summer 2007 has shown that the macro-prudential aspects of financial supervision and regulation need to be significantly strengthened. As a result, in autumn 2010 the EU agreed to establish the European Systemic Risk Board (ESRB), which held its inaugural meeting in January 2011 and has the tasks of identifying and assessing emerging systemic risks, warning about material risks and making policy recommendations on how to contain them. However, considerable gaps remain in the analytical underpinnings of macro-prudential supervision and regulation. Report
With the Assange dcoument about bank regulations being released, it is good to go back to Elizabeth Warren. Here she is discussing her role on COP, the Congressional Oversight Panel to which Harry Reid, Speaker of the Senate, appointed he when she was teaching at Harvard.
We forget what the difference between banks and insurance companies and other public companies is. Banks handle other peoples’ money. Not theirs.
Oversight of banks is in the interest of the public good. Because bankers act like they do not have the public responsibility, they reset oversight.
Here is Warren on the nerve this comimittee was sriking when they asked members of th ebaning community to tesify. (COP did not have subpoena power, so people could come or not as theywished.)
Hank Greenberg, by then the fromer CEO of AIG, called Warren and demanded to see her in her offices at Harvard. He did not dispute the conclusions of the COP: the wild risk-taking at AIG and its risk to the entire economy. Instead he wanted to talk about why he was under-appreciated as a great CEO.
When he was unable to persuade Warren that AIG had been a messy risk tangle under his leadership, he turned his anger on Eliot Spitzer, the former Atotrney General of New York State. When that didn’t get him anywhere where gave up.
Warren’s conclusion: executives of large financial institutions have very different world views than other people. If these companies did not have in trust so much money that was not theirs, this egocentrism might not be so consequential. But we have given banks an advantage. They get, manage and profit from other peoples’ money and they are considered so indispensable to the economy that we will not let them fail when they deserve to. At least if we don’t let them fail, we should put some fo their leaders in jail.
