The Financial Services Authority (FSA) today published its Financial Risk Outlook (FRO) outlining the main risks and issues present in its operating environment, affecting firms, markets and consumers. 

This year’s FRO is divided into four sections:

Fannie Mae needs another $15 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned its losses will continue this year.

The scale of intervention to support the banks in the UK, US and the euro-area during the current crisis totals over $14 trillion or almost a quarter of global GDP. It dwarfs any previous state support of the banking system. These interventions have been as imaginative as they have large, including liquidity and capital injections, debt guarantees, deposit insurance and asset purchase.

An anemic government auction of 30-year bonds closed out a weak round of debt sales with low demand on the far end of the debt yield curve.

The $25 billion auction fetched a whopping 4.72 percent high yield on weak demand, reflected in a 2.36 bid-to-cover ratio that compares demand for each dollar auctioned. The average is about 2.50.

Hector Sants is to step down as chief executive of the Financial Services Authority this summer after three years in the job, it was confirmed this morning.

US war on banks coming to UK next week. President Obama's pledge on Thursday afternoon to end the "excess and abuse" and a "binge of irresponsibility" in the financial system, shook shares in banks.

London will thrive as a financial centre over the next decade by becoming the natural western hub for emerging market growth, according to one of the City’s best-known hedge funds.

In stark contrast to bankers’ doom-laden predictions about the City’s imminent demise and defections of hedge funds amid movement of some staff to Switzerland by prominent funds such as BlueCrest Capital and Brevan Howard, Toscafund is convinced that the growth of the Bric nations – Brazil, Russia, India and China – can only work to London’s advantage.

The Bank for International Settlements will gather top central bankers and financiers for a meeting in Basel this weekend amid rising concern about a resurgence of the “excessive risk-taking” that sparked the financial crisis.

In its invitation, the BIS cited concerns that “financial firms are returning to the aggressive behaviour that prevailed during the pre-crisis period”.

Read the rest at FT!

This report presents the results of the 2009 Q4 survey. The 2009 Q4 survey was conducted between 16 November and 4 December. The results are based on lenders’ own responses to the survey.

Supply

It has become known as the “Great Recession”, the year in which the global economy suffered its deepest slump since the second world war. But an equally apt name would be the “Great Stabilisation”. For 2009 was extraordinary not just for how output fell, but for how a catastrophe was averted.

Italy's leading bankers and business leaders have called for the Basel II rules on bank capital to be shelved or delayed, fearing a serious credit crunch next year.

The warnings came as Standard & Poor’s listed 17 Italian banks at risk of a downgrade as the delayed effects of rising defaults start to hit home.

Giampaolo Galli, director-general of Italy’s business lobby Confindustria, said the economy could not withstand the shock of credit tightening if stricter rules start to bite next year as planned.

Branches of Clydesdale Bank and Yorkshire Bank could be merged with assets of Royal Bank of Scotland and Lloyds Banking Group in an attempt to create a new retail banking competitor in Britain.

National Australia Bank (NAB), which owns Clydesdale and Yorkshire, said that it had been approached by industry players over potential consolidation involving both of the banks.

The Financial Services Authority (FSA) has strengthened its stress testing regime by requiring firms to improve their stress testing capability, enhance their capital planning stress testing and by introducing a reverse stress testing requirement for firms.

The FSA’s integrated approach to stress testing consists of three main elements:

Three pan-European watchdogs are to be created to oversee the financial services sector under a compromise deal struck by ministers in Brussels.

The breakthrough came after several hours of negotiations on Wednesday, with European Union finance ministers agreeing complex voting and appeal procedures should any country feel the new authorities are overstepping their brief and intruding on areas of national sovereignty.

Shares in banks, builders and companies part-owned in the Middle East fell around the world on Thursday and investors sought safety in government bonds on worries about Dubai's ability to pay its debts.

The Bank of England extended secret emergency financing to Royal Bank of Scotland and to what was then HBOS during the banking panic last October, indicating the two banks were even closer to collapse than had been thought.

From the beginning of October 2008 when Ireland guaranteed the liabilities of all its banks, HBOS needed life support, with RBS also seeking emergency lending on 8 October.

Regulatory reform of the world's banks is becoming a painful thing to watch. The main object, never that clear to start with, is disappearing under a mass of suffocating detail. Perhaps policymakers should turn for guidance to an unlikely source - health and safety.