Тема 28. Банковское дело.

Text A. Bankless banking.

The Internet age was supposed to herald hard times for the middleman. Customers, so it was said, would flock to the web to buy products and services faster, cheaper and more transparently than in shops or through intermediaries. Disintermediation has indeed come about, as any out-of-work travel agent or bookseller will tell you. Yet retail bankers – the middlemen between savers and borrowers – have been surprisingly untouched.

Enter Prosper marketplace, a Californian company that matches people who need small loans with others who have extra cash to lend. Prosper launched its website at the beginning of 2006. In several weeks the number of active bids was running at around 200. Lenders have put up some $750,000.

Such “person-to-person” lending is not entirely new. Zopa, a British venture that also matches borrowers with willing lenders, opened for business in March 2005. It now boasts 50,000 members, of whom 15% are trying to borrow or lend money at any given time. The company does not publish the volume of loans.

On both Zopa’s and Prosper’s sites, borrowers, who first undergo identity and credit checks, post bids specifying how much they wish to borrow and the highest interest rate they are willing to pay. Lenders bid the lowest rate they will accept for a given credit profile (based on credit scores, debt-to-income ratios and other metrics) and period. To diversify risk, most loans are made on a “one-to-many” basis, meaning a lender’s loan of, say.$5,000 would be spread across lots of borrowers. Zopa’s lenders’ money is strewn among at least 50 borrowers. Prosper’s members can take on entire loans if they like.

The companies mange repayments and hire debt collectors should a borrower default. They make their money by charging borrowers 1% of the amount of the loan. Prosper also charges delinquency fees and levies a servicing charge on lenders. Zopa takes commissions on repayment insurance.

Zopa and prosper say that lenders can earn a higher rate than they would from a savings account and borrowers pay less than on a credit card. According to Richard Duvall, Zopa’s chief executive, interest rates on Zopa have averaged 7% before bad debts (of which there have so far been none). That companies with the 4.5% paid on a good British savings account and the 15% typically charged on credit-card debts.

There is a psychic pay-off, too. Users on Zopa have said that they like lending and borrowing within a community of “real” people, rather than through a faceless bank. Mr. Duvall notes that affinity credit cards (i.e., those linked to an activity or membership) tend to have lower default rates than traditional credit cards. ‘The sense of community matters’, he says.

Prosper takes this idea a step further, by allowing customers to form groups of borrowers with similar interests or backgrounds – similar to social networking sites such as MySpace.com or Friendster. Groups include one made up of Harvard Business School alumni, and others for atheists and agnostics. Groups with reputation for repaying loans on time can expect to get cheaper interest rates.

Chris Larsen, Prosper’s founder, believes that these groups will help his company cut the two biggest costs encountered by credit-card companies: customer acquisition (often requiring pricey direct-mail or advertising campaigns) and defaults. Because group leaders earn money as their members repay loans, they have an incentive to recruit new members – in theory, doing Prosper’s marketing f it. And the hope is that group members will be less prone to default because doing so would lower the credit rating of their group as a whole. Moreover, while borrowers can remain anonymous to the larger community, group leaders will know who has defaulted, so there is a “shame” factor. “It only takes lowering default rates by a fraction of a percentage point to make a difference”, says Mr. Larsen.

Catherine Graeber of Forrester Research, a consultancy, is intrigued by te idea, particularly because it might attract 18- to 28-year-olds who need credit and spend hours logged on to social networking sites. These people, says Forrester, are much less likely than their parents to care about brands when choosing a bank. They are also routinely ignored by banks.

Still, potential pitfalls remain. One is that Prosper’s group concept suffers from an inherent conflict: bigger groups mean more borrowers, but less cohesion, weakening the shame factor. But perhaps person-to-person finance’s biggest difficulty will be to attract enough lenders – particularly once customers start to default, as they surely will. Ms Graeber points out that there is a reason why banks and credit-card companies charge the rates they do. “Unsecured lending has a high default rate”, she says. “What do these companies know that banks don’t? ” (“The Economist”, 2006)

Text B. A licence to lose money.

Like most monopolies, central banking can be a highly lucrative business. America’s Federal Reserve reported profits of over $23 billion in 2003. The Fed pays no interest on its liabilities, more than 90% of which are notes in circulation; meanwhile, it collects a tidy sum from its assets, principally safe, American government securities. For as long as people want to hold money in their pocket, not a lot can go wrong.

Not all central banks are as fortunate. The European Central Bank made a loss in 2004, for the second year in row. The Bank of Japan (BOJ) has stuffed its balance sheet with Japanese government bonds that yield next to nothing. If the value of these were to fall sharply, the balance sheet would suffer.

Between them, BOJ and other Asian Central banks have amassed $2 trillion in foreign-exchange reserves, perhaps 70% of them in dollars. Should the dollar fall, these central banks will be exposed to heavy capital losses. In a widely cited paper last year, Matthew Higgins and Thomas Klitgaard, two economists at the Federal Reserve Bank of New York, calculated that a 10% appreciation of South Korea’s won against the dollar and other reserve currencies would mean a capital loss for the South Korean central bank of almost 3% of GDP. China would suffer a loss of similar proportions, should the yuan gain 10%.

Those conclusions, grave though they were, were based on 2003 figures. Nouriel Roubini, of New York University and Brad Setser, of Oxford University, look two years ahead. If China continues to amass reserves at its current pace, they calculate, a 33% appreciation of the yuan at the end of 2006 might inflict a capital loss of almost 15% of GDP.

Losses on such a scale would be deeply unsettling to any central banker used to the quiet life. But they would not be unprecedented. In 1989, for example, the central bank of Nicaragua suffered losses worth 13.8% of GDP, according to a working paper by Peter Stella of the International Monetary Fund. In the second quarter of the same year, Argentina’s central bank made losses worth 23.5% of GDP. During Liberia’s civil war, Mr Stella reports, the country’s central bank was left in such disarray that it unceremoniously ejected from the nation’s clearing house. Central banks are supposed to stand behind domestic financial institutions and keep them in line. But in Liberia, the flock turned on the shepherd.

The losses of which Messrs Roubini and Setser warn may look as if they would similarly cripple Asia’s central banks, or force Asia’s taxpayers to bail them out, handing over perhaps 15% of annual output to restore their balance sheets. However, a central bank cannot “fail” in the way that a commercial bank can. Central banks enjoy, quite literally, a licence to print money. Thus, Liberia aside, central banks can always find the means to pay their obligations, because the ”means of payment” – legal tender – is theirs to mint and to print.

The trouble is, a central bank that is forced to rely on the printing press to make both ends meet risks igniting inflation. Typically, Mr Stella finds, central banks that lose money year after year also lose their grip on prices. By 1989, for example, Argentina’s inflation was so strong that the printing presses of the national mint reportedly broke under the strain. On the other hand, monetary disarray is not a necessary consequence of central-bank losses. Mr Stella highlights the counterexample of Chile. Despite making losses throughout the 1990s, Chile’s central bank succeeded in taming inflation, bringing it down from 26% in 1990 to single digits by the middle of the decade.

Which example, Chile or Argentina, bears more relevance to Asia’s central banks? In Argentina’s case, the losses its central bank sustained, and the inflation it unleashed, were both symptoms of the same underlying cause: a government that relied on the central bank to finance unaffordable spending.

Chile’s government, by contrast, pursued a tight fiscal policy. Thus, Mr Stella argues, when the central bank created liquidity to cover its losses, the inflationary effect was offset by the government’s contractionary stance. Why, then, was the central bank unprofitable in the first place? In part, the central bank made losses because of the exchange-rate policy the country pursued. Like central banks in Asia, the Central Bank of Chile holds large stocks of foreign-exchange reserves. it typically sells domestic securities to offset the dollar assets it buys. Unfortunately, the peso interest rate it pays on these securities is rather high than the dollar rate it earns on its reserves.

The true price of all those dollars.

The dollar reserves on the balance sheets of Asia’s central banks are likewise a by-product of their governments’ exchange-rate policies. In pursuit of a cheap currency, central banks have diverted savings into low0yielding foreign assets. These reserves are not needed to provide emergency cover for imports: the World Bank reckons that China has enough reserves to buy an entire year’s worth. They are not needed to cushion the country from a sudden outflow of capital: China holds reserves worth 14 times its short-term foreign debt. In fact, economists at Goldman Sachs reckon that Asian central banks, excluding Japan, hold twice the reserves they need.

If these reserves were to lose their value, in local currency terms, the taxpayer might not rush to replace them. This is not to say that the central banks would suffer only a paper loss. The losses would be real but, as Mr Setser says, they are also “sunk costs”. There is no way that Asia’s central banks can sell their reserves, reinvesting the proceeds in higher-yielding assets, without triggering the very capital losses they would hope to avoid. If they try to rouse these dormant assets, they would empty them of value. If they wish to preserve their worth, they must let them lie. (“The Economist” April, 2005)

Text C. Fasten your seat belts.