Because of an error in the original source article, an item in Tuesday's SIFMA Global SmartBrief incorrectly identified Mark Austen as CEO of AFME. Austen is the chief operating officer of AFME. SmartBrief regrets the error.
The Irish government unveiled an austerity budget as the European Council gave the green light to a €22.5 billion loan to the troubled country through the European Financial Stability Mechanism. The loan is part of a broader €85 billion package previously agreed upon to aid Ireland. The loan comes with strings attached, including a revamp of Ireland's banking sector. "The state will own the bulk of the banking system," said Brian Lenihan, finance minister for Ireland.
The Bank of England Monetary Policy Committee is meeting this week and is expected to leave its loose monetary policy unchanged amid financial turmoil in the euro zone and rising inflation. Reuters surveyed more than 60 economists, none of whom expected changes to the central bank's 0.5% interest rates or £200 billion asset-purchase programme. "The bank has relegated policy changes to quarterly inflation-report months," said David Page, an economist at Lloyds Banking Group. "The inflation report and minutes clearly show that the bank has switched into neutral."
The EU has allowed banks to sidestep capital requirements on government bonds in their domestic currency, giving them a zero-risk weight, despite how risky the debt might be, according to Reuters. Putting an end to the situation, however, will be difficult because it will be costly for lenders, markets and the broader economy. However, insiders said the risk-free status of sovereign debt has directly contributed to bond-market turmoil.
Dominique Strauss-Kahn, head of the International Monetary Fund, said European governments need to develop a broad answer to the sovereign-debt crisis. "My view is very simple -- the euro zone must find a comprehensive solution to this problem," Strauss-Kahn said. "It is not a good approach that for every country we find a separate solution." The IMF managing director spoke as finance ministers from across Europe met to debate options.
Adair Turner, chairman of the UK Financial Services Authority, said "rules to keep bankers honest" are needed as he defended the regulator's decision to clear Fred Goodwin, former CEO of Royal Bank of Scotland, of any wrongdoing. "An enforcement case needs to rest not on popular desire to find someone to blame but on whether rules were broken," Turner wrote in a column published in Financial Times. Meanwhile, Business Secretary Vince Cable is demanding details of the FSA's report on RBS. A letter from Cable to Turner is evidence of mounting pressures on the FSA to publish results of its investigation into RBS.