THE HINDU EDITORIAL : SEPTEMBER 19, 2018
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THE HINDU EDITORIAL : SEPTEMBER 19, 2018
THE HINDU EDITORIAL – September 19, 2018 is one of the must read section for the competitive exams like IBPS RRB PO, IBPS RRB Office Assistant 2018, RBI Grade “B” 2018 & NIACL Assistant 2018. These topics are widely expected to be asked in the reading comprehension , Cloze Test or Error Detection topics in the forthcoming exams. So gear up your Exam preparation and learn new words daily.
A) Banking on mergers
The move to merge banks is understandable, but shareholders should have been consulted
Asking healthy banks to take over weak banks appears to be the strategy to handle the bad loans crisis. On Monday the Union government proposed the merger of three public sector banks — Bank of Baroda, Dena Bank and Vijaya Bank — to create an amalgamated entity that will become the country’s third largest lender. The merger is part of the government’s efforts to consolidate the banking industry with an eye on overcoming the bad loan crisis. After the announcement of the merger, shares of Bank of Baroda and Vijaya Bank shed a significant part of their value, while Dena Bank gained sharply to hit upper circuit on Tuesday. This is not surprising at all. Dena Bank is the bank in the worst financial situation among the three entities and is currently under the Reserve Bank of India’s prompt corrective action framework. Unlike the other two banks, its shareholders are set to gain from being part of a new bank with greater financial strength. The current merger, it is worth noting, comes after the government let State Bank of India’s associate banks merge with their parent last year and the Life Insurance Corporation of India take over the troubled IDBI Bank this year.
Forced mergers such as the current one make little business sense for the stronger banks as the weaker banks tend to be a drag on their operations. They are also unlikely to solve the bad loan crisis that has gripped the banking system as a whole. It is important to ensure that such mergers do not end up creating an entity that is weaker than the original pre-merger strong bank. That said, the fact is that mergers are one way of managing the problem and therefore cannot be discounted totally. However, the trick lies in ensuring that the merger fallout is managed prudently; identifying synergies and exploiting scale efficiencies will be crucial here. There is no denying the fact that there are too many public sector banks in India; given this, consolidation is a good idea in principle. But ideally, mergers ought to be between strong banks. Then again, these are not normal times and with many banks in a precarious situation, the immediate compulsions for merging the weak Dena Bank with the stronger Bank of Baroda and Vijaya Bank are clear. From a corporate governance perspective, however, the merger sends out rather poor signals. Here is a dominant shareholder in the form of the government that is dictating critical moves that impact the minority shareholders, who are left with no say in the matter. A merger as significant as this one ought to have been first discussed and approved in the board rooms of the banks concerned. If the shareholders of Bank of Baroda, whose share fell by 16% on Tuesday, feel unhappy, that is perfectly understandable.
B) Ten years on, in uncharted waters
The crises in emerging economies show how vulnerable they remain to the vagaries of U.S. economic policy
Economists thrive on crises. The East Asian crisis of 1997 caused a rethink on full capital account convertibility and fixed exchange rates. The Internet bubble and bust of the early 2000s led many to question the impact of new technology on long-term productivity growth. The scandals in the corporate world through the 2000s in the U.S. provided grist for a fresh debate on corporate governance.
None of these was any match for the opportunities for cerebration created by the financial crisis of 2007. The crisis, which peaked in early September 2008, occasioned an enormous outpouring of scholarly papers, articles and books on the causes of the crisis and the lessons to be learnt. Have these made the world any safer? Unlikely, as we shall see later.
Centred in regulation failure
The crisis of 2007 had multiple causes. Global macroeconomic imbalances, a loose monetary policy in the U.S., the housing bubble in the U.S. again and elsewhere, a bloated financial sector, a flawed belief in efficient markets, greedy bankers, incompetent rating agencies — these and others have been identified as among the villains of the crisis. All of them undoubtedly contributed their part. But each has happened before without on its own bringing on a global economic crisis.
Most of the blame for the implosion of the financial sector in 2007-08 lies elsewhere — in a failure of regulation. This failure manifested itself in several ways. One, banks were allowed extraordinarily high levels of debt in relation to equity capital. Two, banks in the advanced economies moved away from the business of making loans to investing their funds instead in complex assets called “securitised” assets. The securitised assets consisted of bundles of securities derived from sub-prime loans, that is, housing loans of relatively higher risk.
The switch from loans to securitised assets had enormous implications for banks. With a loan, losses are recognised over time. In contrast, investments are ‘mark to market’, that is, losses or gains on these have to be recorded instantly. As housing prices started falling and the securitised assets lost value, it translated into enormous losses for banks.
These losses eroded bank capital and created panic among those who had lent funds to banks. The lenders to banks, it turned out, were not primarily retail depositors but short-term lenders in the wholesale market. This was the third element in the failure of regulation, allowing banks excess dependence on short-term funds.
There were other failures of regulation. Banks had low standards for making housing loans. Bankers’ pay was designed so that it allowed them to take excessive risk. The boards of banks did not exercise adequate oversight.
These failures were not confined to the U.S. They infected banks in Europe and some in Asia as well. These banks were not merely exposed to American assets. As economic historian Adam Tooze has pointed out in a recent book and in an article in Foreign Affairs (September/October 2018), they had financed these assets through large borrowings in the American wholesale market. The sub-prime problem was thus not just an American problem but a problem for large chunks of the global banking system.
As wholesale markets dried up, the Fed provided dollar funds to central banks in Europe and in Asia. Governments everywhere rushed to save their financial institutions. Central banks provided liquidity support to banks. The failure of banks was sought to be counteracted by fiscal and monetary expansion. The loss of jobs and output has been enormous. Various political consequences have unfolded: the Eurozone crisis, Brexit, the rise of nationalism and anti-immigrant policies, the Trump phenomenon in the U.S. and the return of protectionism.
How did such a colossal failure of regulation occur? The problem was ‘regulatory capture’, the ability of financial institutions to influence polices of governments and regulators. Financial institutions are a big source of political funding. There is also the ‘revolving door’ syndrome. Bankers in the U.S. and Europe hop on to jobs in government and regulation. Government officials and regulators land lucrative jobs and assignments with banks.
No accountability
The ‘revolving door’ plays havoc with regulation. It must also explain the total lack of accountability of bankers for the havoc they created. No top banker has been prosecuted or jailed. Instead, banks have paid up hefty fines for assorted violations, the fines coming from the pockets of shareholders.
India has not suffered much on account of the financial crisis. Growth has slowed down to 7% but that is in line with the trend rate over the past two decades. Several prudent policies have helped. India has not embraced full capital account convertibility. It has kept short-term foreign borrowings within stringent limits. India did not open up to foreign banks despite pressure from the U.S. and the international agencies. Foreign banks retreated from overseas markets following the crisis, causing a severe credit crunch in places such as Eastern Europe. India escaped this fate.
Is the world safer from a financial crisis today? The key reform measures have focussed on getting banks to have more equity capital and to reduce dependence on short-term borrowings. The design of executive pay has been changed so as to reduce incentives for taking excessive short-term risk. Some improvements in governance have been effected. These measures have made banks safer than before the crisis but still not safe enough.
Core issues
That is because three issues remain significantly unaddressed. First, the ‘too big to fail problem’ — some banks being so large that they cannot be allowed to fail. Some of the biggest banks in the world have grown even bigger after the crisis. Concentration in banking has increased.
Second, the size of debt in various forms in the world economy. A crucial aspect of the financial crisis was the build-up of private debt, that is, the debt of households and non-financial firms. Two Chicago economists, Atif Mian and Amir Sufi, argued in a well-received book, House of Debt, that the expression ‘financial crisis’ was something of a misnomer. The key driver of the recession in the U.S. was the rise in household debt and the consequent drop in household consumption. This does not negate the view that regulatory failure was the principal cause. It only means that regulation must address growth in credit as well as the flow of credit into sectors such as real estate.
In the years following the crisis, private debt has fallen but government debt and corporate debt have risen. The former head of the U.K.’s Financial Services Authority, Adair Turner, says that total debt — government, corporate, and household — as a percentage of GDP is higher than ever before (Financial Times, September 11). For the global economy as a whole, the overhang of debt poses serious challenges.
Third, financial globalisation makes the world vulnerable to U.S. monetary and fiscal policy. From time to time, the U.S. unleashes a flood of dollars at low rates. The world laps up the cheap finance. Then, the U.S. raises interest rates. Other economies find themselves staring at huge debt repayments. Further, the dollar remains the reserve currency of the world. The U.S. can borrow to the hilt but the dollar will not depreciate, it may even appreciate!
The present crisis in emerging economies highlights how vulnerable emerging markets are to the vagaries of American economic policy. The world needs to be weaned away from its dependence on the dollar. Alas, an alternative global financial architecture is nowhere in sight. Economists are free to draw their lessons from financial crises but the world is ultimately shaped by political and business interests, not by economists.
VOCABULARY
1) amalgamated
Meaning : combine or unite to form one organization or structure.
Tamil Meaning : கலந்துவிட்டனர்
Synonyms : alloy , admix
Antonyms : disconnect
Example : “he amalgamated his company with another”
2) consolidate
Meaning : make (something) physically stronger or more solid.
Tamil Meaning : ஒருங்கிணைப்பதற்கு
Synonyms : cement , strengthen
Antonyms : decrease
Example : “the first phase of the project is to consolidate the outside walls”
3) shed
Meaning : a simple roofed structure used for garden storage, to shelter animals, or as a workshop.
Tamil Meaning : சிந்திய
Synonyms : discard , scrap
Antonyms : keep
Example : “a bicycle shed”
4) prudently
Meaning : in a way that shows care and thought for the future.
Tamil Meaning : விவேகமுள்ள
Synonyms : cautious
Antonyms : expensive
Example : “we must act prudently to safeguard jobs”
5) synergies
Meaning : the interaction or cooperation of two or more organizations, substances
Synonyms : teamwork
Antonyms : discord
Example : “the synergy between artist and record company”
6) exploiting
Meaning : make full use of and derive benefit from (a resource).
Tamil Meaning : பயன்படுத்தி
Synonyms : adventure , escapade
Antonyms : failure
Example : “500 companies sprang up to exploit this new technology”
7) denying
Meaning : state that one refuses to admit the truth or existence of.
Tamil Meaning :
Synonyms : ban , refute
Antonyms : accept
Example : “both firms deny any responsibility for the tragedy”
8) precarious
Meaning : not securely held or in position; dangerously likely to fall or collapse.
Tamil Meaning : நிலையற்ற
Synonyms : delicate
Antonyms : definite
Example : “a precarious ladder”
9) perspective
Meaning : a particular attitude towards or way of regarding something; a point of view.
Tamil Meaning : முன்னோக்கு
Synonyms : attitude , prospect
Antonyms : hopeless
Example : “most guidebook history is written from the editor’s perspective”
10) rather
Meaning : used to indicate one’s preference in a particular matter.
Tamil Meaning : மாறாக
Synonyms : angle , aspect
Antonyms : little
Example : “would you like some wine or would you rather stick to sherry?”
11) thrive
Meaning : prosper; flourish.
Tamil Meaning : செழித்து
Synonyms : develop , flourish
Antonyms : decrease
Example : “education groups thrive on organization”
12) crises
Meaning : a time of intense difficulty or danger.
Tamil Meaning : நெருக்கடி
Synonyms : change , deadlock
Antonyms : benefit
Example : “the current economic crisis”
13) rethink
Meaning : consider or assess (something, especially a course of action) again, especially in order to change it.
Tamil Meaning : சிந்திக்க
Synonyms : amend , reassess
Antonyms : spoil
Example : “the government were forced to rethink their plans”
14) grist
Meaning : useful material, especially to support an argument.
Tamil Meaning : ஆதாரத்தை
Synonyms : staple , resources
Antonyms : chunk
Example : “the research provided the most sensational grist for opponents of tobacco”
15) bloated
Meaning : swollen with fluid or gas.
Tamil Meaning : வீங்கிய
Synonyms : distended , tumefied
Antonyms : deflated
Example : “he had a bloated, unshaven face”
16) flawed
Meaning : having or characterized by a fundamental weakness or imperfection.
Tamil Meaning : குற்றமுள்ள
Synonyms : faulty , flawed
Antonyms : accurate
Example : “a fatally flawed strategy”
17) greedy
Meaning : having an excessive desire or appetite for food.
Tamil Meaning : பேராசை
Synonyms : eager , hungry
Antonyms : abstemious
Example : “he’s scoffed the lot, the greedy pig”
18) implosion
Meaning : an instance of something collapsing violently inwards.
Tamil Meaning : உள்வெடிப்பைத்
Synonyms : bankruptcy , rupture
Antonyms : achievement
Example : “the star undergoes a violent implosion caused by gravity”
19) manifested
Meaning : clear or obvious to the eye or mind.
Tamil Meaning : பகிரங்கமான
Synonyms : glaring , unmistakable
Antonyms : hidden
Example : “her manifest charm and proven ability”
20) implications
Meaning : the conclusion that can be drawn from something although it is not explicitly stated.
Tamil Meaning : தாக்கங்கள்
Synonyms : conclusion , indication
Antonyms : measurement
Example : “the implication is that no one person at the bank is responsible”
21) eroded
Meaning : (of wind, water, or other natural agents) gradually wear away (soil, rock, or land).
Tamil Meaning : அரித்து
Synonyms : corrode , destroy
Antonyms : build
Example : “the cliffs on this coast have been eroded by the sea”
22) panic
Meaning : sudden uncontrollable fear or anxiety, often causing wildly unthinking behaviour.
Tamil Meaning : பீதி
Synonyms : confusion , dismay
Antonyms : assurance
Example : “she hit him in panic”
23) Fed
Meaning : a federal agent or official, especially a member of the FBI.
Tamil Meaning : மத்திய
Synonyms : bolster , deliver
Antonyms : deprive
Example : “I don’t think he has any friends since he grassed to the Feds”
24) counteracted
Meaning : act against (something) in order to reduce its force or neutralize it.
Tamil Meaning : எதிர்க்கும்
Synonyms : correct , negate
Antonyms : allow
Example : “should we deliberately intervene in the climate system to counteract global warming?”
25) lucrative
Meaning : producing a great deal of profit.
Tamil Meaning : இலாபகரமான
Synonyms : good
Antonyms : unprofitable
Example : “a lucrative career as a stand-up comedian”
26) havoc
Meaning : widespread destruction.
Tamil Meaning : அழிவை
Synonyms : calamity , chaos
Antonyms : blessing
Example : “the hurricane ripped through Florida causing havoc”
27) hefty
Meaning : large and heavy.
Tamil Meaning : மிகப்பெரிய
Synonyms : colossal , substantial
Antonyms : impoverished
Example : “a hefty young chap”
28) scholarly
Meaning : involving or relating to serious academic study.
Tamil Meaning : அறிவார்ந்த
Synonyms : erudite , learned
Antonyms : ignorant
Example : “scholarly journals”
29) stringent
Meaning : (of regulations, requirements, or conditions) strict, precise, and exacting.
Tamil Meaning : கடுமையான
Synonyms : binding , demanding
Antonyms : amenable
Example : “stringent guidelines on air pollution”
30) crunch
Meaning : crush (a hard or brittle foodstuff) with the teeth, making a loud but muffled grinding sound.
Tamil Meaning : நெருக்கடி
Synonyms : crisis , difficulty
Antonyms : calm
Example : “she paused to crunch a ginger biscuit”
31) recession
Meaning : a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
Tamil Meaning : மந்த
Synonyms : collapse , deflation
Antonyms : increase
Example : “the country is in the depths of a recession”
32) incompetent
Meaning : not having or showing the necessary skills to do something successfully.
Tamil Meaning : தகுதியின்மை
Synonyms : incapable , inept
Antonyms : capable
Example : “a forgetful and utterly incompetent assistant”
33) vagaries
Meaning : an unexpected and inexplicable change in a situation or in someone’s behaviour.
Tamil Meaning : மாற்றங்களைப்
Synonyms : quirk , whim
Antonyms : choices
Example : “the vagaries of the weather”
34) depreciate
Meaning : diminish in value over a period of time.
Tamil Meaning :தணி
Synonyms : decrease depress
Antonyms : build
Example : “the latest cars will depreciate heavily in the first year”
35) misnomer
Meaning : a wrong or inaccurate name or designation.
Tamil Meaning : தவறான சொல்வழக்கு
Example : “‘King crab’ is a misnomer—these creatures are not crustaceans at all”
36) incentives
Meaning : a thing that motivates or encourages someone to do something.
Tamil Meaning : ஊக்க
Synonyms : impetus , stimulus
Antonyms : hindrance
Example : “give farmers an incentive to improve their land”
37) assets
Meaning : a useful or valuable thing or person.
Tamil Meaning : சொத்துக்களை
Synonyms : belongings
Antonyms : debt
Example : “quick reflexes were his chief assets”
38) enormous
Meaning : very large in size, quantity, or extent.
Tamil Meaning : மகத்தான
Synonyms : gargantuan , immense
Antonyms : common
Example : “enormous sums of money”
39) scandals
Meaning : an action or event regarded as morally or legally wrong and causing general public outrage.
Tamil Meaning : ஊழல்கள்
Synonyms : crime
Antonyms : approval
Example : “a bribery scandal involving one of his key supporters”
40) dictating
Meaning : state or order authoritatively.
Tamil Meaning : முடிவெடுக்க
Synonyms : edict , precept
Antonyms : answer
Example : “the tsar’s attempts to dictate policy”
THE HINDU EDITORIAL : SEPTEMBER 18, 2018
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