Face cold realities of global hot money: researcher

BEIJING, May 19 -- The 2008 China Financial Market Development Report,
issued by the People's Bank of China on May 4, pointed out that various stimulus
packages launched by respective countries would influence supply and demand
relation in international financial market. This may probably lead to a large
scale withdrawal of capital from emerging markets. "If the inflowing offshore
funds in China begin to outflow, it may probably result in a drastic adjustment
in the stock market and bond market of China," said the report.

The warning of the Chinese central bank is based on the financial crises as
it occurred in different countries as well as the appreciation of the US dollar
since the later half of 2008. The dollar value moving up resulted from the
flowback of large sums of money from international markets to the US after
subprime mortgage crisis.

After the financial tsunami broke out in the US in 2008, it is not only the
US financial institutions that brought back the capital invested overseas to
make up the shortage of liquidity but capital in the global market also sought a
safer place--the US market. Therefore, it is no surprise that foreign capital
withdrew from emerging markets considering that capital from other parts of the
world also flowed to the US.

Various recovery measures and economic stimulus packages, which are
announced by the affected countries with the aim of saving a depressed economy,
will also change the trend of capital flows in the international financial
market.

On May 5, State Administration of Foreign Exchange (SAFE) in China solicited opinion from all social sectors on the issue of administration of domestic foreign exchange accounts of foreign institutions. SAFE stated that these accounts of some foreign institutions tend to be a hotbed of illegal practices because of the absence of unified regulations. SAFE will reinforce the management of these accounts in domestic non-offshore banking sectors.

I believe that there are several key points here. First, SAFE will regulate
the opening and operation of foreign institutions' domestic foreign exchange
accounts, in order to keep track of cross-border capital flows. Second, it wants
to prevent these accounts from being used for money laundering. Third, it
intends to prevent the large-scale illegal flow of cross-border capital in these
accounts from adversely impacting China's financial market. Fourth, it wants to
avoid these accounts becoming the main channel for the escape of international
hot money.

In recent years, with the increasing opening up of China, more and more
foreign institutions have opened foreign exchange accounts in domestic banks.
The volume of business keeps increasing rapidly. According to incomplete
statistics, such accounts opened by foreign institutions within China exceeded
100,000 at the end of 2008.

A few years ago, when RMB was appreciating fast and domestic asset prices
increasing in leaps and bounds, a large number of foreign institutions
frequently opened accounts in domestic banks. This made a huge a mount of
international hot money rush into China. The total volume of international hot
money in China at that time was estimated to be $500-600 billion equivalent to 5
trillion yuan. After the financial crisis broke out, due to the reflux of the US
dollar and the depreciation of RMB, the net outflow of the balance of payments
accounts in China is estimated to be between $20 billion to $200 billion in the
fourth quarter of 2008.

The trend of RMB exchange rate and the development of Chinese economy in
the future will determine the direction of international hot money flow.
Considering the fact that China's economy will recover earlier than other
countries, if RMB exchange rate can be kept stable or even allowed to rise
slightly, there is little chance of a massive outflow of international hot money
from China, no matter how turbulent international financial markets are. If the
flow of international hot money can be limited to a controllable range, we don't
need to worry about it too much.

However, if China doesn't accelerate the pace of economic reform for
dealing with key problems, China's economy will face many difficulties when the
US and European economies revive after the crisis. By that time if the RMB is
depreciated because of a slowdown of China's economic growth rate, it is
possible that there would be huge amounts of international hot money outflow
from China.

China should tighten the administration of the cross-border flow of
capital. But it is unnecessary to strictly control the outflow of oversea
capitals. The key to this issue is whether China's economy can keep sustained
and steady growth.

The author is a researcher with the Institute of Finance and Banking under
the Chinese Academy of Social Science

(Source: China Daily)

IIF: Private capital flow to emerging markets to drop hugely

By Wu Ye, Qu Shaohui

BEIJING, June 12 (Xinhuanet) -- Dramatic decline in
net private capital flows to emerging markets will be seen in 2009, according
tothe Institute of International Finance (IIF).

Ina report released Thursday at the Spring
Membership Meeting,the IIF predicted that the volume of private capital
flows to emerging markets this year will likely be 141 billion U.S. dollars,
which is less than one-half of the 2008 total of 392 billion dollars and far
below the record of 888 billion dollars seen in 2007.

Regional divergences are also highlighted in the IIF
report. Most significantly, projections of flows to "Emerging Asia" and Latin
America have been revised upwards while revising down the estimates of net flows
to "Emerging Europe."

In Asia, the net private capital flows to emerging
markets is projected 88 billion dollars this year ascompared to59
billionin 2008 and record 296 billionin 2007. Aggregate net
repayment of private sector capital by "Emerging Europe," of 33 billion dollars,
is now foreseen in 2009, after net inflows of 214 billion dollars in 2008.

Nevertheless, a modest revival of flows is now
starting to become evident and the IIF projects that the 2010 volume of private
capital flows to emerging markets will reach 373 billion dollars.

The IIF said that following a period of extreme
weakness between October 2008 and March 2009, flows to emerging markets appear
to have improved somewhat over the last two months, albeit to levels far below
the early months of 2008.

William Rhodes, First Vice Chairman of the IIF's
Board of Directors, Chairman and President, Citibank and Senior Vice Chairman,
Citi, stressedthat moderate recovery in capital flows inemerging
markets partly reflects a rise in investor confidence both in response to
measures taken bygovernments in emerging markets, including China, to
stimulate their economies and to the international support that emerging markets
are now starting to receive.

In the report, IIF projected that net private capital
inflows to China, which moderated from a peak of 153 billion dollars in 2007 to
88 billion dollars in 2008, are set to stabilize at around 60 billion dollars
this year and next year.

Rhodes also noted, "The International Monetary Fund
must deploy its expanded resources with skill to assist its member countries to
achieve economic recovery. And, it is also important that every effort be made
to increase the resources available to the World Bank Group, including the
International Finance Corporation, and to the regional development banks,
including the Asian Development Bank. These institutions have major roles to
play at this time."

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Crisis

U.S. regulators set June 8 deadline for banks to develop capital plan

WASHINGTON, May 6 (Xinhua) -- U.S. regulators said on Wednesday that the nation's largest banks that were found to have the need to raise more capital in the "stress tests" will have one month to develop the plan.

After the details of the "stress tests" are released on Thursday afternoon, any banks needing to augment its capital buffer will have until June 8 to develop a detailed capital plan, and until Nov. 9 to implement that capital plan, said the regulators.

"Over the next 30 days, any bank holding company (BHC) needing to augment its capital buffer will develop a detailed capital plan to be approved by its primary supervisor, in consultation with the FDIC, and will have six months to implement that plan," said a joint statement released by Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair.

U.S. media have reported that about half of the 19 largest U.S. banks will be told to raise more capital after being "stress tested" by the government.

Citigroup, Bank of America, Wells Fargo and JPMorgan Chase are reported to be among those who will have to boost their reserves.

But Bernanke on Tuesday ruled out the possibility of a new round of massive bailouts to save the U.S. banking giants.

"I've looked at many of the banks and I believe that many of them will be able to meet their capital needs without further government capital," Bernanke told the Congress' Joint Economic Committee.

In Wednesday's joint statement, U.S. regulators also vowed to support the banks if necessary.

"A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery," said the statement.

"The U.S. government reaffirms its commitment to stand firmly behind the banking system during this period of financial strain to ensure it can perform its key function of providing credit to households and businesses," it added.

S Korean gov't may halt capital injection into banks

Special Report: Global Financial Crisis

SEOUL, May 7 (Xinhua) -- The South Korean government may stop injecting capital into the local banking system with credit crunch showing signs of improvement, local media reported Thursday.

According to South Korean financial authorities, local banks are capable of boosting their own capital by issuing bonds, new shares, or hybrid securities with progress in funding conditions, South Korea's Korea Herald reported.

Bank officials also said that they are able to raise their capital on their own, thanks to better-than-expected earnings in the first quarter, as well as improvement of Bank of International Settlements capital ratios, according to the Korea Herald.

The management committee of the recapitalization fund late last month started a review to see whether any of local banks that had previously requested for a capital injection, which would be completed by the end of this week, the media said.

"Compared to the situation during the first-phase injection earlier in the year, market conditions have greatly improved and the demand for capital injection has shrank," an official from the fund management committee said.

U.S. regulators set June 8 deadline for banks to develop capital plan

WASHINGTON, May 6 (Xinhua) -- U.S. regulators said on Wednesday that the nation's largest banks that were found to have the need to raise more capital in the "stress tests" will have one month to develop the plan.

After the details of the "stress tests" are released on Thursday afternoon, any banks needing to augment its capital buffer will have until June 8 to develop a detailed capital plan, and until Nov. 9 to implement that capital plan, said the regulators.

"Over the next 30 days, any bank holding company (BHC) needing to augment its capital buffer will develop a detailed capital plan to be approved by its primary supervisor, in consultation with the FDIC, and will have six months to implement that plan," said a joint statement released by Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair.

U.S. media have reported that about half of the 19 largest U.S. banks will be told to raise more capital after being "stress tested" by the government.

Citigroup, Bank of America, Wells Fargo and JPMorgan Chase are reported to be among those who will have to boost their reserves.

But Bernanke on Tuesday ruled out the possibility of a new round of massive bailouts to save the U.S. banking giants.

"I've looked at many of the banks and I believe that many of them will be able to meet their capital needs without further government capital," Bernanke told the Congress' Joint Economic Committee.

In Wednesday's joint statement, U.S. regulators also vowed to support the banks if necessary.

"A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery," said the statement.

"The U.S. government reaffirms its commitment to stand firmly behind the banking system during this period of financial strain to ensure it can perform its key function of providing credit to households and businesses," it added.

U.S. unveils results of stress tests, urges 10 banks to raise $75 bln

¡¤U.S.unveiled stress tests results, urging 10 banks to raise about 75 billion dollars.
¡¤Tests found total credit losses for 19 banks may reach $600 billion in 2009 and 2010.
¡¤U.S. government hopes the results would help restore confidence and encourage lending.

Photo taken on May 6, 2009 shows the
headquarters of Citigroup Inc. in the borough of Manhattan in New York,
the U.S.. U.S. regulators Thursday unveiled the long-waited results of the
government's stress tests, which show that 10 of the nation's 19 largest
banks need a total of 74.6 billion dollars. (Xinhua/Shen
Hong)
Photo
Gallery

by Xinhua writer Liu Hong

WASHINGTON, May 7 (Xinhua) -- U.S. regulators
Thursday unveiled the long-waited results of the government's stress tests and
urged 10 of the nation's 19 largest banks to raise about 75 billion dollars in
new capital to withstand future losses if the recession worsened.

Federal Reserve chairman Ben Bernanke said the
results "should provide considerable comfort to investors and the public,"
noting nearly all the banks have sufficient capital "to absorb the higher losses
envisioned under the hypothetical adverse scenario."

The assessment results are "just one important
element of the governments broader and ongoing efforts to strengthen the
financial system and the economy," said the U.S. central bank chief in a
statement.

"Roughly half the firms, though, need to enhance
their capital structure to put greater emphasis on common equity, which provides
institutions the best protection during periods of stress," he said.

MORE CAPITAL
NEEDED

Among the institutions needing more capital, Bank of
America needs to raise 33.9 billion dollars in capital with Wells Forgo needing
13.7 billion dollars and the auto and mortgage lender GMACLLC requiring 11.5
billion dollars, said the Federal Reserve, which led the tests.

Meanwhile, Citigroup requirement for deeper reserves
to withstand future losses is about 5.5 billion dollars and Morgan Stanley needs
1.8 billion dollars. Regions Financial Corp., Fifth Third Bancorp, KeyCorp, PNC
Financial Service Group Inc. and SunTrust Banks also were told to bolster their
reserves.

By contrast, Bank of New York Mellon Corp, American
Express Co., Capital One Financial Corp, Goldman Sachs Group Inc, JPMorgan Chase
Co., U.S. Bancorp, BBT Corp., State Street Corp. and MetLife Inc do
not need capital.

The revelation that Bank of America needs about 33.9
billion dollars to fill the hole will increase pressure on Ken Lewis, the
company's embattled chief executive.

The tests also found that total credit losses for the
19 banks may reach 600 billion dollars in 2009 and 2010. All told, if the
economy performs as badly as the worst case scenario used in the stress test,
the 19 banks' losses would mount to 950 dollars billion from mid-2007 through
2010.

U.S. regulators gave the banks that are found to
raise more capital one month to come out with the plan.

"Over the next 30 days, any bank holding company
(BHC) needing to augment its capital buffer will develop a detailed capital plan
to be approved by its primary supervisor, in consultation with the FDIC, and
will have six months to implement that plan," said a joint statement released by
Treasury Ministry and other regulators.

Banks needing to augment its capital buffer will have
until June 8th to develop a detailed capital plan, and until November 9th to
implement that capital plan.

NO RISK OF
INSOLVENCY

Some investors said the result of the government's
two-and-a-half month examination was less negative than many feared. Other held
out the idea that many banks would be able to boost their capital without
government's support.

The U.S. government hopes the results would help
restore confidence and encourage lending.

"This is just the beginning and we are going to keep
working to try and make sure this financial system is in ... a strong enough
position so it can provide the credit necessary for recovery," Treasury
Secretary Timothy Geithner, noting that none of the 19 banks are at risk of
insolvency.

His remarks were echoed by White House spokesman
Robert Gibbs.

"I think what we're likely to see is some confidence
in our financial system and some genuine clarity about the path moving forward,"
said Gibbs at the daily press briefing, noting the banks will emerge stronger to
help the economy rebound.

Earlier this week, Bernanke Tuesday also ruled out
the possibility of a massive new round of bailouts to save the U.S. banking
giants.

"I've looked at many of the banks and I believe that
many of them will be able to meet their capital needs without further government
capital," Bernanke told the Congress' Joint Economic Committee on Tuesday.

The government has said in the past that no large
bank will be allowed to fail.

The banks that require more funds could raise new
common equity from existing shareholders ore new investors, convert preferred
shares held by private investors or the government into common equity or sell
additional assets.

If banks still could not raise enough capital to meet
the stress test requirements, they could apply support from the 700 billion
bailout funds.

The unveiling of the result marked the end of a
process designed by the Obama administration to restore confidence in the
banking industry.

However, some economists and investors were skeptical
about the credibility of the tests.

"At best, the process may have been a waste of time;
at worst, it's something that has caused more confusion," said Mike Holland,
chairman of private investment firm Holland Co.

Photo taken on May 6, 2009 shows the
Metlife building in the borough of Manhattan, New York, the U.S.. U.S.
regulators Thursday unveiled the long-waited results of the government's
stress tests and found that 10 of the nation's 19 largest banks need to
raise 74.6 billion dollars in new capital to withstand possible future
losses. (Xinhua/Shen Hong)
Photo Gallery

TOUGH EXIT
RULES

U.S. regulators also imposed strict rules on banks
that want to exit the financial bailout program, requiring them to demonstrate
to the government that they can survive without its support.

Banks generally must apply to the Treasury and secure
permission from their bank supervisor in order to repay the federal bailout
funds, so far only a handful of small banks have done so.

The 19 largest banks seeking to withdraw from the 700
billion dollars rescue program will have to prove that they can borrow money
without the support of the Federal Deposit Insurance Corp, said the U.S.
regulators in a joint statement released on Wednesday.

The guarantee of debt issuance offered by the FDIC
allows banks to borrow money relatively inexpensively. Banks have more than
330billion dollars in debt outstanding under the program.

The new rules could deter some banks such as
Citigroup and Bank of America from trying to repay bailout funds early, said
analysts

Some banks including Goldman Sacks, JPMorgan Chase,
have vowed to exit the bailout program as soon as possible in part to prove
their financial health, but also to escape from tough rules governing executive
pay.

U.S. regulators set June 8 deadline for banks to develop capital
plan

WASHINGTON, May 6 (Xinhua) -- U.S. regulators said on
Wednesday that the nation's largest banks that were found to have the need to
raise more capital in the "stress tests" will have one month to develop the
plan.

After the details of the "stress tests" are released
on Thursday afternoon, any banks needing to augment its capital buffer will have
until June 8 to develop a detailed capital plan, and until Nov. 9 to implement
that capital plan, said the regulators. Full story

Special Report: Global Financial Crisis