The Economic Capital Management

Beyond these differences on the nature of the risk taken into account, the two types of methods are opposed to their method of calculation. Indeed, the peculiarity of the economic capital is that it incorporates the correlations between micro-economic risk of the counterparty in question and the macroeconomic risks that could affect it. The economic sector of the counterparty or its geographic location and are included in the measure of risk, so you can enjoy the most exhaustive possible potential failures.

More broadly, the sensitivity of the consideration to changing the general economic situation is also a factor in determining the economic capital, through the calculation of the coefficient R2. Thus, while regulatory capital stops at the theoretical definition of the risk of the counterparty, the internal model for determining the economic capital takes into account economic conditions and interdependencies of various factors, allowing a more detailed assessment of risk and therefore economic capital to put in front of the activity.

Specific objectives in the economic capital are an essential instrument of strategic management

Economic capital should actually meet three objectives nested, with the backdrop of the profit motive of financial institution:

* Assessment of risk-adjusted returns: in particular through the calculation of RAROC (Risk Adjusted Return on Capital). The RAROC measures the rate of return of an activity by adjusting the level of capital employed by the risk. Economic capital thus defined to measure the financial performance of the activity in the expected benefits related to capital needed to cover it.
* Portfolio Management: Once the risk-adjusted returns calculated, it becomes possible to compare the actual performance of various businesses of the bank.
* Strategic management activities: economic capital thus enables the bank to arbitrate between the different professions in order to optimize the use of capital.

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Regulatory Capital

With the reform of the Cooke ratio implementation through the Basel II regulations, the calculation of regulatory capital tends to approach the method highly economical. Based on a finer appreciation of risk capital. Regulatory and would achieve the same objectives as economic capital. But if the effects induced by the application of Basel II can approach the objectives of economic capital, economic capital remains under a real added value in relation to regulatory capital for strategic management activities.


The economic capital of a financial institution, amount of capital required to meet unexpected losses (unexpected loss) is defined using internal models for each activity. The Cooke ratio in turn was based on a more comprehensive approach to risk, not broken down by activity. Conversely, regulatory capital as defined by Basel II is characterized by a measure of individual risk, including segmentation between risk classes, which brings them closer to an economic vision. Moreover, the loss rate (LGD) or exposure to default (EAD) are factors common to both types of methods in determining the capital.

However, despite these similarities, a fundamental difference between the two methods is the notion of risk considered. Indeed, the risk of "outstanding" included in the internal economic capital model is wider than the risks involved in the Basel II regulations, and cover the face of unexpected losses does not necessarily require an increase in equity . Indeed, the economic capital includes the entire system set up on the line of activity. Thus, the managerial qualities such coverage may be the face of extraordinary losses considered in determining the economic capital.

potential Of Financial Services

The share of foreign capital into the banking assets of the countries of Central and Eastern Europe (CEE), now estimated at 75% to 80%, is anything but an accident. This trend was encouraged by the movement of bank privatization. Trade observed over the past decade and to develop intermediary capable of mobilizing domestic savings. Above all, this figure demonstrates the potential growth in the region to major markets such as Russia, Poland or Hungary, and masks the presence of unequal foreign financial players.

Specifically, several German and Italian banks such as Commerzbank and Unicredit or Austrian and Swiss, the image of Erste Bank and Raiffeisen, are already well established, indicating that geographic proximity was a key factor in the conquest of the new Eastern markets. Also, funds provided by these states and for the CEECs in the 1990s have probably facilitated the implementation of their banks. Most surprising finding, the "global players" (HSBC, Citibank ...) have invested less, preferring other growth markets like China. Similarly, the French presence is limited, with the exception of Societe Generale which CEE a major focus of its development.


Yet these countries have managed to restore their economies and now represent a real alternative to the erosion of traditional markets of Western Europe. To get there, the CEECs, ordered to move towards the convergence criteria, have benefited from European integration, or at least his perspective, positively impacting their economies. Thus, before adopting the euro in 2007, Slovenia has seen its GDP grow by 5.2%, its unemployment rate drop to 6% and inflation at 2.6%.

The Currency

The dollar Thaler born in the mountains of Bohemia in 1520, is very young face, for example, the dinar Arabic, the denarius of the New Testament. Longevity also a bit mysterious, like everything related to money. After all, why accept a piece of gold, silver or shell as payment? Because this object is easily transformed into jewelry, thus satisfying a need for adornment supposedly inherent in all humanity. But then an austere and puritanical society should not prohibit it and the currency is limited to barter? In fact, the seller has accepted this sign because he knows that he will pay him tomorrow or something, which means something more durable, the day after tomorrow. And he knows because it is the custom, or rather the law, which de facto limits the jurisdiction in which money circulates. Moreover, more power is distant and changing the law, more monetary support of the sign must be rare and valuable: Darius fought for gold, silver and Pericles Leonidas iron.

Therefore, only legitimate democracies of the twentieth century were able to permanently accept the greenback as currency transactions, and reserve account. Only, indeed, such a system allows the public to believe sincerely that the State work for the common good and not primarily for private benefit, especially legally. Contract law is respected by the courts, the promised values do not fluctuate overnight at the discretion of the parties, as is often the case with an arbitrary power, so a simple piece of paper is a reserve credible value. Even today, this is not apparent everywhere and one can rightly assume that the strong demand for gold, saving the Indians and, increasingly, the Chinese in fact reflect a deep distrust of these people face their leaders and their judges. It is thus not surprising that any lasting weakening of the statutory authority is accompanied by currency turmoil.

The Currecny and The Inflation

If the tickets are not hoarded, but used as soon as possible, the rampant inflation is not preprogrammed. This requires, besides the loss of confidence in the state, a simultaneous collapse of production, caused for example by the French occupation of the Ruhr in Weimar Germany, the nationalizations of the early Soviet unbridled or hunting white farmers in Zimbabwe of Mugabe, to name only the most famous examples of hyperinflation.

Such phases have been rather rare, especially given the tremendous growth that the world has known these past hundred years. Is that the introduction of a purely fiduciary currency regime has liberated our economies of these brakes ancestral: the lack of credit and therefore money. Ever it was no more acute than in the standard purest gold, between 1870 and 1910, during which nine successive recessions in the United States, the Bank of England has often had to temporarily lift its cover- Gold, protectionism grew at the same time as the social discontent. Between the rush California and the opening of South African mines, the world sorely missed because of the yellow metal to properly feed its growth potential. So - as some said - that humanity is not crucified on a cross of gold, while central banks have gained powers when they have not simply been created as the U.S. Federal Reserve and the National Bank Switzerland. But the link to gold remained still too strong since it is probably he who explains the magnitude of the Great Depression of the 30s.

Faced with these shortages and crises, and despite all its faults, the monetary regime fiduciary past fifty years seems rather beneficial. Certainly, central banks create money by their own judgments, frightening those who do not understand the value of a currency does not lie in its coverage, but in its ability to purchase. Now this creation is not reckless because the tickets are always accepted with gusto by those who are lucky enough to receive it. For accounting purposes, rather, they seem-backed IOUs, but it might not be the case if they were not put into circulation through banks.

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The Economic Crash and The Future of Dollar

The death of a currency is essentially a political thing. It may be decided in the cold, as in the old currencies of the euro area. It can also - and often does - disappear because the company no longer operates legally. While it may be pessimistic about the future of the United States, but only Cassandra argue that this country is on the verge of collapse. So the dollar will survive even as the U.S. economy recovers, the federal government has ever borrowed so cheap and instead of inflation, deflation is more threatening, thereby increasing Americans even more attractive for their money. Certainly, the greenback could get by in his corner, but losing its prerogatives international. However not forget that more than a store of value is the motto franca of global trade, one in which most prices are rank, and transactions are settled. Neither the renminbi still inconvertible nor faltering euro area can play this role today and even tomorrow. This will be a fortiori not the case of a basket type SDR, an instrument that can be used for transactions, no one ever knowing which component of the basket used. As proof, the ECU was not only becoming euro currency. All proposals to reform the international monetary system based on such a cart so that saliva are lost. Unless of course, like the European Monetary Union, we created a world central bank issuing, say, bancors, as Keynes had proposed at Bretton Woods in 1944, an idea that nobody is going to seriously defend after disappointments that one size fits all policy of the ECB has brought.

The Economic Trend and Prospects of Dollar

In terms of profitability, companies in Europe have seen their profits grow by an average of 13% from 1998 to 2008, as against nearly half (7%) to their American rivals. And if the U.S. financial sector is much more comprehensive and profitable than that of Europe, the crisis of 2008 showed that he can destroy in a few months the entire stock market value created in a decade. In the end, and above all, the huge weakness of U.S. growth model is that it is based on debt. Europe obviously has its own debt problems, but its two engines, Germany and France, keep public finances healthier than the U.S. by 2014, the IMF provides. The trade balance in Europe has remained strong, primarily because it is facing competition from Asia in manufacturing and service sectors, the Europeans were able to focus on products with high added value, such as luxury goods and precision tools. The Americans, losing their competitiveness in the manufacturing sector, have carried on consumer credit.

In the U.S., we like the easy is being printed and devalued. And markets are applauding. The fact that it has a high cost for the future goes out the window. This policy operates in the markets' perception that the idea to use credit produces wealth. But this "truth" is leveled at around a beautiful fable only be enriched when producing goods and services and a debt that has accumulated leave mine GDP growth and competitiveness.

And if the return to growth post-2001 has been sharpest in the United States, because Europe has calculated its growth more restrictive than the United States, Underestimating the reality, while United States, conversely, inflated their numbers. And again, U.S. growth has come at a future cost much higher than Europe, which has boosted its economy without stimulus. The United States has instead introduced a fiscal stimulus and monetary policy extremely lax, who only prepare the huge destruction of value in 2008. And since 2009, the same fiscal and monetary doping was replaced in even larger proportions ... The headlong rush is obvious.

Great Recession - 1930

The Great Depression of the 1930s is probably the most studied topic in American economic history. Contrary to some persistent myths conveyed by the opponents of the market economy, there is not yet consensus on its causes and its exceptional duration. So today begins our collaborator in the first two columns, to present another vision of the crisis as it was developed by Friedrich Hayek, Murray Rothbard, Milton Friedman, Robert Higgs and other liberal authors.

The Depression of the 1930s is invariably presented as the logical outcome of capitalism. Victim of its own contradictions that led to a crisis of overproduction and concentration of wealth in the hands of some exploiters, the market economy would have been saved by judicious intervention of the New Deal of Franklin Delano Roosevelt. This scenario, however, one big problem: it is supported by no historical data. We will therefore examine in this column a different view of the Great Depression, arguing that its severity can be explained largely by the policies of the U.S. Federal Reserve Board and the subsequent actions of Republican President Herbert Hoover, a man who is usually presents as an uncompromising liberal.

The Origin of Great Recession Part.II

While exports of European companies were able to maintain their share of 17% of the global market since 2000, from their American rivals fell 17% to 11% over the same period. The element that is reflected in the very healthy trade balance of Europe. Of the 100 largest multinationals in the world, the EU has raised its share from 57 to 61 between 1991 and 2009. Conversely, of 26, the U.S. does boast more than 19. The key to this success: the European companies were the most highly globalized, their share of sales outside the EU up 39% against 30% for the United States.


In terms of production, American superiority is another myth. Between 1995 and 2005, if the data are attuned to replicate differences in economic cycles, trend efficiency growth in the euro area is slightly more than the U.S., said Kevin Daly, an economist at Goldman Sachs N, 2010.Concernant in undersized and intermediate enterprises, as their productivity is comparable to those of the New Continent. And their rate of globalization is very high, as the share of their sales abroad often reaches 80%. Especially, their degree of innovation is actually much higher: most industrial innovations of the last decade has occurred in Europe, while they have virtually disappeared from the U.S., where the focus is almost exclusively on technological innovation (Apple, Google, Facebook).

In addition, countless industrial producers of niche and major automakers and high-speed trains (Renault, Fiat, Volkswagen, Alstom) are European, and now dominate the trade with the emerging giants (Brazil, Russia, India, China).

The Origin of Great Recession Part.I

The origin of the "Great Recession" World 2008 - 2009, there is a drift of American finance practices resulting from the dismantling in the 1980s, dozens of laws protecting savings, followed an unprecedented collapse of ethical standards and minimum care in the world of banks and businesses. These developments have led to a culture of excessive leverage and the institutionalized cheating accountant who has infected the global financial system public and private, only too happy to expose himself, but too ill-prepared to extricate them. Despite this, the United States remains more than ever seen as the yardstick of economic success and financial Europe is declared the loser in all competitions. That of the currency and interest rate policy, that of economic growth, the hourly productivity, wage levels and labor market reforms, the fiscal discipline. And when the U.S. subprime crisis erupted, is actually Europe that has suffered most, because it undertakes to settle all problems with printing money.

This obvious bias was reflected in the outperformance of the Dow Jones U.S. index relative to the European index Euro Stoxx 50 between 2003 and today, the market penalizes the more conservative policies that emphasize the long term. But again, the myth trumps reality. The commonplace on U.S. growth is inhibited by greater numbers. On the one hand, GDP per capita grew slightly more European than the United States since 2000. On the other hand, European companies are more competitive in many ways, than their American counterparts. Recall that according to the World Economic Forum on the 20 most competitive economies in the world, 12 are européennes12 (7 of which use the euro).

Inflation and US Economy

The Fed has chosen to focus on core inflation (core inflation), which excludes food and energy, ignoring the historically high commodity prices. It kept interest rates low and fueled the subprime bubble that has "poisoned" the financial sector in all developed countries. In contrast, the ECB has chosen to focus on overall inflation, reflecting the influence of emerging markets on rising commodity prices. This resulted in a much more accommodative monetary policy for the Fed, which will be maintained during the decade 2000 - 2010, real interest rates negative to zero half the time, conduct unthinkable in Europe, where the rate interest of the ECB held steady over the decade in a range of 2% to 4.25% and is down below 1% since May 2009.

In short, Europe was characterized by a more responsible economic management and a long term vision that contrasts with the choice of U.S. policies rewarding in the short term but long term suicidal. In doing so, Euroland has been repeatedly sanctioned as less effective by a financial community hungry for "chips" to power the "casino", and anabolic steroids to boost the stock market. United States, this meant a policy of overstimulation leading to the forced expansion of an economy that was completely retract, the time to cleanse themselves and go on a diet. So these last twenty years, Europe has been seen and experienced as rigid and boring by market operators constantly claiming she is aligned with the U.S. monetary policy, "more growth-oriented," and that it manages to stimulate consumer debt, ideal dictated by the U.S. model. "Always behind," Europe is less than the U.S. in times of euphoria, facial expression does one, and falls into a recession more severe in times of crisis, even when these crises have their origin the United States.

And one pretends to ignore that Europe, with less cheating because its economy is suffering as long as she finds herself infected, its territory by U.S. banks toxic. Indeed, the same "solutions doping" that Goldman Sachs sold to Greece have been used in the early 2000s by various regional banks and public entities in Europe, including Italy, Portugal, in the German Länder, and Eastern Europe. But the national authorities and community were not ready to provide remedies as extreme as their American counterparts.

The Dollar May End!!!

Favre appeared recently in "The End of the dollar" of Myrette Zaki is certainly better than what we hear from those who take the title literally. It's not about death or disappearance of the U.S. currency. Just the story, and especially the news of his slow decline in stages. Some passages seem suddenly very enlightening. Like this, this reflects the European perception of two irreconcilable approaches to the economy.

Ala expansionist policy and unconventional Federal Reserve opposed the plan cautiously and strictly European. Europeans are resisting the American vision, which is also that market. They seek to reduce budget deficits and considered, rightly, that the austerity efforts today will be rewarded in the future. Conversely, the word "austerity" has disappeared from the American vocabulary long ago, the latter being perceived by investors as "bad for growth."

So that even if U.S. growth in 2011 is higher than that of Europe, the price paid by the United States to have postponed indefinitely a return to austerity is incalculable long-term. Although more conservative, the ECB has chosen to limit as much as possible in November 2010, liquidity injections, such as practice shots at the Fed redemptions of government securities. With regard to redemptions of bonds of countries in difficulty by the ECB, they are limited to 72 billion euros at the end of 2010, 90 billion dollars. Including the purchase of private debt securities, the ECB is the guarantor of some 200 billion euros. In comparison, the Fed has made, by June 2011, the repurchase of securities amounting to 2.3 trillion dollars in its two programs of "quantitative easing" (QE I and II), 1000000000000 toxic securities, earning the nickname the passage of "financial shock". In other words, the comparison is almost absurd because the interventions totaled U.S. tenfold. Despite this, the ECB believes it has made a major concession by buying back shares because it has derogated from article 123 of the Treaty on the Functioning of the EU which outlaws "monetizing the debt", ie the process "run the printing press".

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Still bad news for U.S. economy

The U.S. economy suffered further bad news. First, the Commerce Department left unchanged its estimate for growth in the fourth quarter, to 0.6% only. However, analysts expected a 0.8% enhancement.

These figures are 2.2% growth over the whole year, from 2.9% in 2006, which is the lowest rate since 2002. Household consumption fell sharply in the last quarter (+1.9% instead of 2% estimated earlier, and after 2.8% in the third quarter) and investment in the stone has indeed fallen by 25, 2% (instead of -23.9%), the largest decline recorded since 1981. Business investment grew by only 6.9% (instead of 7.5%).

Inflation is well above normal

The index measuring prices related to consumption expenditures (PCE) increased 4.1% (instead of 3.9%), and the PCE core index (excluding food and energy) increased 2.7 %, as in the first estimate. Now the Fed wants to keep it normally from 1% to 2%.
Finally, the weekly claims for unemployment benefits rose 19,000 to 373,000 in the United States during the week ended Feb. 23. Analysts had forecast 350,000 jobless.

Bad news for the U.S. economy

A bad news for the U.S. economy: This could impact on New York and the other European stock exchanges also. According to official figures released Friday, found hiring a standstill for the second successive month in the U.S. in June, the joblessness rate for its enduring his climb. According to the employment report from the Labor Department during the month just ended, the U.S. economy created only 18,000 more jobs than it destroys.

Hopeful, analysts expected for their hiring of 80 000 net. The situation is particularly alarming that these new posts will not ensure employment for young people entering the labor market. As a result, the official redundancy rate of the country continues to rise which began in April, now stands at 9.2%, and its peak level since the beginning of the year.

The balance in May was also revised down from 54,000 to 25,000. Note that the figures from the Ministry are in total opposition to the satisfactory results of the survey published Thursday on the ADP private employment, destroying almost the wave of hope born yesterday.

The accord reached by Bloomberg on tables and 105,000 new jobs, the agency has raised its estimate of 83,000 initially, given the good figures released by ADP. But now the situation has heightened concerns about the continuing slowdown in the U.S. economy, new support measures being considered. A circumstance for the turn down in financial markets: for example, at the close on Friday, the Dow Jones fell by 0.49% to 12,657 points, the Nasdaq dropping 0.45% to 2860 points and the S & P 500 falling 0.70 % to 1344 points.

Tips for Investment In Stocks Part.III

Certain conditions must be met for a product to be the target of speculators, they are:
* A growing market:
Forecasts and expectations on the treated product should be the hause.
Oil is a commodity increasingly used in our economies and especially in emerging countries.
The consumption worldwide is increasing steadily for many years but natural resources are not infinite.
The price of a barrel of oil went from $ 30 in 2004 to $ 120 in 2008, an increase of 300% in 4 years..
The law of supply and demand simply acting on this market: more and more demand, less supply.
* Market liquidity:
Have a rising market is a thing essentially, but not sufficient, speculation implies easily able to buy and sell easily. Buy 10,000 tons of oil today at $ 120 is useless tomorrow if nobody buys you $ 200, what would you do 10 000 tons of oil at home?
The liquidity of the market must be large, which is the case for a barrel of oil is trading very easily: the cargo on large oil change ownership several times during their sea voyage.

It therefore appears that the playground of speculators in markets that have already started up and have significant prospects in the same direction.
Speculation does while follow market trends.
* "The speculation does not create trends but amplified"
The rising price of oil is not directly related to speculation but to:
* Demand more and bigger (with a demand for more and more strong in emerging countries)
* Deal with an offer less and less important or less stagnant (it was estimated that the natural reserves could cover another 10 years of our world's needs for oil-drilling techniques are becoming more efficient).

Tips for Investment In Stocks Part.II

The Money is considered a low risk investment and therefore to use in policies with high risk aversion.

Diversification, the key against all attacks (almost). Whether to retain a single word it is this one: DIVERSIFICATION!

As stated above the proverb fits so well: "Do not put all your eggs in one basket."

Stock market diversification is to invest in different companies, different business sectors, different geographic areas, this allows not only partially undergo a crisis of a business or present in a geographic area.

Take the example of the Internet bubble at the end of year 90:
Case 1: People who invested only in technology stocks could have a portfolio valued at several million at the end of year 90. When the Internet bubble burst, their portfolio has plummeted to a value near zero.
Case 2: People with a partially invested in technology stocks and partly in the so-called traditional values, certainly had a portfolio valued less than the 'case 1', however, when the Internet bubble burst, their investments in traditional societies were allowed to keep a good value of their portfolio (even if the technology stocks that have collapsed, traditional values have continued to grow).
Investing in life is to apply a rule to limit losses due to changing markets. The principle: invest gradually and investing in time.
Financial speculation
Financial speculation is the fact to act in anticipation of market trends. It aims to use the profits in the short to medium term and is applied to all financial markets (equities, currency, commodities ...).

The principle of speculation is the goal of profit by anticipating market trends.
Investors speculation on the current price of a barrel of oil price increase its estimate that more or less important in the near future. They will buy at a price of barrels of oil to be sold at a price B (B> A) a little later.

Tips for Investment In Stocks Part.I

Here are some important principles to be followed while invest in share market. Applying these principles has the effect to win every time but to reduce its exposure to changing markets. They are not exhaustive but represent a good start to understand the philosophy of financial investments. Knowing the aversion to risk is very important in stock trading. What is risk aversion?

Risk aversion is the level of risk you're willing to accept. A strong aversion to risk means that you bear little risk, and conversely a low aversion to risk implies that you're willing to take risks.
Risk aversion can be classified into three categories:

* Low
* Average
* Strong

Once its aversion to risk assessment, it is possible to choose its investment products. It is important to realize that the returns are commensurate with risks: the higher the risk, the greater the gain / loss potential can be significant.

Some products are to be avoided or privileged following its aversion to risk, here are the 3 main families of products that can be used:

* Shares

Shares are products with high volatility, it is best to choose this mode of investment strategies with low risk aversion. It is possible to make a lot quickly, but also losing a lot.

* Bonds

The Bonds are to be considered in strategies to moderate or high risk aversion (this will depend on the strength of the underlying). These products allow recovery of interest at intervals over a set period of time. The risk of these investments is the cessation of payment of the underlying (state, company ...).

Local Fund Management

Some local governments also use the notation to assess their client image from financial institutions.
Representing a significant market potential, and a limited risk of default, local authorities have benefited from the years 1990 positive effects of competition between banking intermediaries:

* Commoditization of credit to local authorities;
* Lowering the cost of credit;
* Strengthening innovation in the development of formulas to simplify the method of debt management and financing tailored to different aspects of local budgets.

With the strengthening of financial independence and their need for funding, the decentralization offers new opportunities and banks are continuing their efforts to penetrate while searching for a quality signature.

The landscape of local funding has therefore changed with the advent of increased competition between the banking intermediaries and diversification of the offer. The complexity of the financial environment for local communities contributes to the professionalization of their financial functions that adopt progressive methods of reasoning of private management to optimize and streamline the management of debt:

* Arbitrage rate to reduce the risk of exposure;
* Active management of cash;
* Tighter budgetary control which requires the identification of commitments vis-à-vis third parties and to book, upstream, the necessary funds;
* Taking into account the multi-annual dimension of public management in local part of a prospective approach.

These developments are a key factor in terms of financial innovation. The banks have set up the financing products (cash management, lending short-term interest rate hedging ...) and services (value of active management of debt, project financing, investment of windfall ...) enabling them meet the new budget and financial practices of local communities.

The rise of the finance function in different directions with a strong accounting is also an important vector of disintermediation. Funding for local government being deregulated, they can raise funds directly in financial markets. New financial instruments of capital markets are, therefore, supplements or alternatives to traditional bank financing. Faced with disintermediation of financing local authorities, banks offer services in financial engineering and step up their financial activities in addition to traditional banking activities.

It should however be noted that the financial instruments are much more complex than the traditional bank loan, they can be handled only by large communities that have the expertise and responsiveness necessary to make the most of market opportunities. The disintermediation is to funding of local remains generally high banked.

Financial Management

The recent decentralization movement thus results in the management by local authorities of new economic functions in a new accounting and budgetary framework. The resources that these functions will induce change in level as the budgets that structure.
Local authorities must seek new funding to implement investments related to the exercise of their economic function, despite a high savings capacity.


With a self-borrowing, local governments must make a tradeoff between own resources and resources of loans to finance their investments. The bond acts as an adjustment variable whose magnitude depends on both the level of savings and the relative level of debt earlier.

After several years of moderate changes, it appears that the dynamism of local public investment began in 2003 continues at an annual growth of 8% for 4 years. Local communities continue to invest heavily:

* The election cycle is conducive to investment communal;
* While nearly 70% of public investment is devoted to building and public works, costs in construction and public works experience sustained growth;
* The transfer of responsibilities will encourage communities to support heavy investments (railway equipment, road investment ...).

This increase in investment volume is characterized by a need for increased funding. This results in increases in taxation and an increased reliance on borrowing, facilitated by a context of interest rates still low. In late 2006, the amount of the debt of local authorities is around 111 billion Euros, equivalent to 6% of GDP. This proportion is low in light of European commitments on debt: according to the Maastricht Treaty, the debt cannot exceed 60% of global GDP. In addition, the "financial valve" that is the fiscal autonomy increases the flexibility of local authorities in terms of borrowing.


The principles governing the development of local budgets (principle of annual, principle of unity, and rule of balancing the budget ...) require local management framed.
Therefore, despite important differences, the level of risk and solvency of all local authorities is excellent.

Credit Rating Agencies the heart of global financial systems Part.III

In the United States is the SEC that accredits the rating agencies can note issuers, a special status, the NRSRO. It is now held by the five main rating agencies that represent 98% of the U.S. market. The two challengers were able to obtain this status, a prelude to any attempt to internationalize, in 2003 for the Canadian DBRS (Dominion Bond Rating Services) and 2005 to the American AM Best, which specializes in rating companies insurance.


This demand for self-regulation has led rating agencies to overhaul their practices in methodology and ethics. Indeed, quantitative approaches too opaque and often resulted in "very good" ratings of financial players to hidden risks, or having issued bonds such as "structured finance" in spite of the risks associated with the nature of these products.

So in March 2007, it revised its rating methodology for banks by reducing the inclusion of state support or supervisory authorities in order to avoid masking the credit risk inherent in each bank. In June of that year, S & P revised its criteria for assessing securitization vehicles financing leveraged to take into account the loan contracts with very lightweight protection clauses.
On June 25, 2007, the French Banking Commission released the list of ECAI distinguishes seven actors: the Bank of France, Coface, DBRS, Fitch Ratings, Moody's, S & P and Japan Credit Agency. This status enables credit institutions to use the notations of ECAIs mentioned above for France to determine regulatory capital requirements arising from Basel 2 regulations.

The market for credit ratings is changing in light of internal innovations, new regulations and fears of investors. This cache of new players those focus on different goals in the field.

Credit Rating Agencies the heart of global financial systems Part.II

The market for credit ratings in recent years is subject to much criticism. Indeed, it is the issuers that pay the agencies questioning the independence of these. How to be neutral given that the issuer needs only a single note? It will tend to compensate the agency assigning the highest rating. The multiple criteria analysis are, for obvious reasons of confidentiality, never disclosed which increases the opacity a little more of the rating process that can be conditioned on the purchase of related services commonly known as "notching."

By focusing on the area of credit institutions, that summarizes the scoring of key players reveals a strong tendency to align the ratings (all these establishments are located in the first five layers). This convergence makes difficult the choice of investors who may consider not having to provide a rating scale commensurate with the risks involved.

The three leaders in the market for credit ratings are today: Standard and Poor's, Moody's and Fitch Ratings. This virtual monopoly is that international organizations and regulators, the market is fragmented and anticompetitive. In addition, there may be twenty years since the ouster of the firms of smaller sizes, mainly through mergers and acquisitions process which may eventually become a disincentive to impartiality and innovation.


The existence of a thriving market and strongly oligopolistic have IOSCO to react on the limits of the rating agencies through the publication of a code of Conduct "IOSCO CRA Code". CESR has meanwhile called for a self-supervised after which the rating agencies have indicated their willingness to collaborate.

In January 2006, the European Commission considered the establishment of a regulatory framework to oversee the activities of rating agencies superfluous, and therefore formally requested in May 2006 at CESR to produce an annual report on the consideration by rating agencies the principles set out by IOSCO (quality and integrity of the rating process, independence and avoidance of conflicts of interest, transparency and relevance of the ratings, confidentiality of information).

Credit Rating Agencies the heart of global financial systems Part.I

The key player in financial markets over the last twenty years, the CRAs (Credit Rating Agencies) best known under the name of credit rating agencies have become indispensable in providing a double service: an evaluation of the financial solvency of debt issuers (states, local governments, financial institutions, insurance companies, businesses) and participating in the decision support by assessing the financial risk of bonds. These services, summarized in a note, reflect on their own assessment of an agency and its analysts and may result in the case of a "downgrade" or "upgrade" significant repercussions on the costs loan, refinancing or the share price of a company.


Appeared in the United States, the financial rating has grown exponentially due to the internationalization of the markets. The notation is a service agency charged by the issuer and allows investors to compare the financial situation of both sectors to facilitate access to foreign markets and to rapidly assess the overall financial situation of a company. This note is an indicator of default risk, which complements the analysis from audit firms and analysts for investment banks. It allows the emitting structure to negotiate its interest rates for financing bank or bond issues.


Despite common customers and investors, the rating system is not uniform between each agency, even if harmonization has often been stressed. Each agency therefore has its own rating system that distinguishes mainly long-term debt and short-term, and divided into several layers that distinguish investment grade (High Grade) to speculative grade (speculative grade) addressed the latter mainly to investors seeking a high level of performance.

The Private Equity Market Growth

This dynamic cache, however, concerns related to the evolution of the activity. One of the first consequences of market development of private equity buyout is the generalization of so-called secondary, tertiary and even quaternary view, consisting of leveraged acquisitions of companies already owned by one or more other funds. In 2006, the third type of LBO acquisitions was made through this resale between funds. This type of assembly raises serious concerns particularly related to the high level of debt in these successive operations, which raised fears of a bubble bursting. Indeed, the succession of holding recovery strengthens the total weight of debt in financing the acquisition. But a classic LBO average 70% funded by debt. We can now understand the anxieties expressed about the level of debt when several successive LBOs are made on the same entity.

On the other hand, in a context of rising interest rates, the sector should experience difficulties, but still far from an economic downturn. Indeed, this market should continue to grow in the coming years, particularly in France where many companies are to sell, LBO funds have gained credibility recognized, will no doubt key players in the market.

Finally, the IPO of a country, who is stated objective to identify a permanent source of capital and diversify the sources of fundraising, shows that the mutation is now facing the sector. The number of mega deals (i.e. acquisitions exceeding the one billion Euros) is more important, the private equity funds have no choice but to raise more funds. This requires, of course, on the one hand by increasing the resources collected from traditional capital providers. But also, for the sake of being less dependent on suppliers of capital and at the same time less sensitive to changes (particularly increased) interest rates on financial markets, the alternative "fund raising" on the stock market seems obvious. The money, usually so discrete and whose activity is based on the original financing of non hand, may now be found in the coast!

The Private Equity Market

Private Equity market has been experiencing four to five years an unprecedented dynamism. The figures for 2006 speak for themselves:

* 71% growth in business volume in 2006
* 71 billion of funds raised in 2006 or 22% over 2005
* 208 LBOs carried out in France in 2006, with two thirds of companies less than 100M € turnover,
* 1.5 million people now work for a company in France came under LBO, 9 to 10% of private sector employees,

The trend of 2007 is equally positive, as evidenced by recent events in the industry.


Private equity is one of the five main areas of activity of the market says private equity (intervention in the capital of unlisted companies generally to achieve horizon 3-10 years of strong capital gains), other activities are:

* Seed capital (or seed money) which represents the first stage since it is for investment projects still in its infancy, funded in order to develop a technology still in R & D to enable to go forward to a potential market,
* Venture Capital, also known as the Venture Capital (VC), which translates into a capital in innovative companies, being in the early stages of development and which have a high growth potential but also a very high risk,
* Capital reversal of investing in troubled companies to put in place a recovery plan.

The Private Equity, also known financing LBO (Leverage Buy-Out) groups for its funding and leveraged acquisitions of target companies, usually mature companies with strong growth potential. LBO funds - often associated with managers of the target - develop installation and operation of acquisition of the company with the objective to remain the capital of the latter ideally between 5 and 10 years while significantly improving the result of the business recovery. The solutions for output or funds are then variables: initial public offering; taken over by another fund, an industrial sale...

The Private Equity Market Governance

The event was followed by a steady evolution for twenty years, but no relation to the recent explosion. This momentum is the result of a combination of several positive key factors. The first of these is an abundance of liquidity in financial markets. Attracted by high yields (15-16% on average), liquidity providers (banks and insurance institutions, pension funds and private wealth) do not hesitate to fill the capital market allows investors to raise funds more increasingly important. Direct consequence, the number of LBOs has increased but more importantly, the number of very large transactions (over one billion Euros) also increased from 23 in 2006 in France. SMEs are no longer the only target of LBO financing transactions, large groups with a strong interest in the funds management, particularly in terms of activity. So after the frenzy of acquisitions recorded in recent years, these groups now intends to liquidate their related activities generate higher margins.

Then, the low cost of debt, due to low interest rates, gives montages leveraged a significant advantage over other types of acquisition financing transactions. They are based mainly on debt financing of target companies, the current environment when they are particularly favorable to more easily identify a margin between the cost of debt and the return on assets under management. However, this cannot alone suffice to explain the strong growth in activity. Private equity has above all recognition in the governance model in place in companies come under LBO financing. These companies are generally better managed and better valued, and even if some failures can be reported (ten more than 200 annual operations in France), we must recognize that the default rate of the sector is quite low and few are examples of clashes in the area of corporate governance.

Governance is indeed one of the key parameters of a company came under LBO financing. To repay debt must quickly generate cash flow. However, it is recognized that improving the economic value of a target company depends, in large part by the optimization model that will be applied. Therefore, LBO funds agree, from acquisition, to establish a mode of corporate governance more efficient and take the form of a greater focus, accountability of management (generally a shareholder as a result of the operation) and optimization of financial assets.

How To Prevent Identity Theft

Hello friends! Hope you all doing good Now, I am going to share you all information about the identity theft. As a matter of fact, I have enlightened about this very subject through by means of an article found in an online site at moneybusinessexpert.com. The Identity theft is the major threat that most of us may experience the pain of its fatal trap. This is easily avoidable, if you follow some Steps to Prevent Identity Theft and if we practice some simple precautions while using our credit cards. We must remain a follow up of our credit information on usual basis. Credit bureau makes available its client with credit report every year. So get benefit this flair and ensure our account on standard basis. On doing this, we can be clear in our mind that for fear that someone attempt to embezzle our identity, we would be capable to mark it at very near the beginning period. We have got also to save from harm our social security numbers. If you take some precaution then you may save your money and business. To stay behind out of harm's way, we have not to take documents on the subject of it contained by your folder. Memorizing the number will definitely solve this problem. You must as well make in no doubt that it is not written on some piece of paper which possibly will be simply available by others. Hope this information will remain useful for most of you! Thanks!!

The cross-selling and the customer loyalty

Faced with increased competition, banks and insurance companies must continually strengthen relationships with their customers. While 1 / 3 of the people have accounts in several banks, the challenge is to become the main bank or insurance client.

One way to be the leader is to increase the rate of multi-ownership: the interest is to provide diversified products to the customer to capture it while ensuring sufficient profitability during its life cycle. That is to increase revenue per customer (cheaper than acquiring new customers) by increasing the products held by clients and services sold.

The transformation of the sector as the penetration of bank assurance, the Finance assurance and banking-real estate agency promotes more cross-selling. Through tailor-made pricing, offers and services can be complementary and beneficial to customers who already own one or more products and thus meet all their needs (offer a discount on the purchase of a coupled auto and home insurance or credit coupled with car insurance, etc ...)

The additional sales are based on an understanding of the client, and updated as and when relationships are maintained. They depend on the life of the client's potential risk (credit risk) and value ("life time value"). The option to develop the relationship with customers most willing to deepen and extend this relationship is vital.

To stimulate the use and income of customers, relationship marketing must move towards a proactive logic by exploiting business opportunities with specific offers that will be triggered through key moments in the client's life: a real estate purchase, a change of vehicle a termination, etc.... These can be transmitted to the client, on the one hand, in "push" or direct marketing (e.g. on the web, it displays the customer area of the loan amount for which he is eligible, without having make any loan application), and second, in "pull" or sales rebound as enjoy a call from the client to provide a product or service selected by the system depending on its characteristics.

Customer knowledge will know what, how (on promotion campaign outgoing, etc.) and where to propose an offer. Thus, to develop, preserve and consolidate a position in a segment of customers, banks and insurance companies must be able to perform analytical work on the one hand, with qualitative studies to analyze customer needs and thus tailor products, services and associated discourses (e.g. the Net Promoter Score), and secondly, by building the individual marks for customer, quantitative studies, in:

* Potential and customer value ("life time value")
* Association (associated with mortgage insurance)
* Appetizing generic tenders / attrition (technical scoring)
* Segmentation behavioral, relational, or 360 ° C (type of clients)
* Financial risk (estimated probabilities of default, the outstanding event of default and loss associated)
* Textual analysis of the mail client
Ultimately, the challenge is to build a vision aggregate client level and thus part of a multi-logic products to promote adhesion of the client and / or from home to expand the panel of cross-selling .

The importance counterparty risk Part-3

Identify the characteristics of the third party repository brings out the different types of people (customers, prospects, guarantees ...), information (customer classification, signs of third party monitoring bodies ...), for which the required quality levels are not necessarily the same. Two examples: the rate of duplication, including the reduction can improve the consolidation process and risk capital allocation, the rate of third parties not identified as an affiliate of the bank, resulting in poor consolidation risk on intra banking group.

As part of the approval process with Basel 2 instances of trust, quality indicators should focus mainly on:

    * The validity of the SI risk management
    * The performance score of grant, the organization of the rating systems and delegation
    * Compliance with the risk strategy in terms of authorization and action limits

These include examples of indicators as the rate of customer doubtful with a healthy note, the rate of third unrated or with a note too old, or the rate of others rated their group.

To control effectively the quality of each indicator, it is essential to have previously defined a responsible business and responsible SI (the MOA) on each of the data information system. The process of defining indicators is iterative, since the priorities may change based on improvements. To control them properly, it is preferable to retain only 10 in the first place. The dashboard can be enriched progressively as the process will be better understood by employees and more mature. For an effective control, must not exceed twenty indicators, which requires the definition of arbitration process indicators to be adopted.

Once the dashboard as defined with the various indicators chosen, it must be operated and monitored on a recurring basis. Identified as significant variables of a state, the indicators need to restore an image quality of the management of risks by focusing on the area’s most sensitive to the context and business goals. As a minimum, an annual review to define the quality policy to hold, but the quality is a daily challenge; do not forget to make some adjustments over the water...

The importance counterparty risk Part-2

In the long run, it is best to think of more sustainable solutions and, in this regard, the levers are very diverse appointment of quality managers in the contributing entities, workflow validation of customer data, standardization of concepts, comparisons with external sources, management of several criteria of uniqueness. The possible solutions are many but their cost, period of implementation and impact on data quality is variable. However, the prioritization of these actions is often subjective: some effects more "visible" are given priority while others are ignored because their quality impacts are unknown.

The success of the business plan requires a continuous improvement in performance. It should be laid down in processes that involve the third party repository, a real cornerstone of the IF bank. Based on the quality approaches used in industry, the virtuous cycle is divided into five phases: definition of indicators and quality objectives of the standard, indicators measuring, analyzing results, identifying actions to improve the quality control of the effect of implemented solutions. We propose in this article, to limit ourselves to the first two phases that we consider most important.
The definition of indicators based on the combination of an empirical, research-based elements of non-quality in the device in place, and a theoretical approach, having as a starting point to identify key parameters management customer risk:
To invest in the improvement actions that correct the non-quality aspects of the most sensitive, the first step is to build a balanced scorecard indicators are most representative. It is an indispensable asset to the achievement of a critical diagnosis and appropriate vis-à-vis business strategies (risk, marketing, sales ...) defined. While some indicators can be retained only for statistical purposes, the others must be action-oriented: this means they must be involved in a lens quality (which will result in the definition of alert thresholds or levels of expected results ...) and an action plan to achieve the objective. The role of each business management and / or SI concerned to arrive at the expected level of quality must be so in a charter previously defined: it is one of the key success factors of the process.