The need of better integration in environmental criteria in investment!

Banks have become essential in the transition to a greener and more sustainable economy. If their role in financing green infrastructure and renewable energy is identified, their efforts should also focus on the integration of environmental criteria in their funding decisions and investment, primarily in sensitive areas and eventually in all sectors. The 2008 crisis revealed the considerable power to influence of banks on the economy. Respondents even criticized, they undergo a double injunction to continue to finance the economy in all its complexity while being more transparent. Their indirect responsibility is increasingly sought: external stakeholders like customers, shareholders, institutional investors and NGOs), the challenge of repeatedly on the assets they finance and the behavior of large customers they accompany their development. Beyond all controversy, it has become imperative for them to be able to explain their decisions to finance and investment. How can banks now tackle the challenge of meeting the ever increasing global needs while encouraging the development of a production of "sustainable"? To meet this dual standby, banks must gradually integrate Environmental, Social and Governance (ESG) in all funding decisions and investment. The goal is to better understand the potential risks to better identify projects for funding, companies in which to invest, and the most sensitive regions. Their inclusion will progressively as they are both away from the heart of business of the bank (financial risk analysis), long-term and with a low probability of occurrence but maximum impact if realized. The most sensitive to environmental or social terms economic sectors must be supervised by funding policies and responsible investment that apply to all products and services, including asset management. In a little over a year, our group has worked on the areas of palm oil, nuclear, agricultural raw materials essential to the pulp and paper and finally the electricity produced from Coal. These are very heavy projects: each policy requires six months of work on average. All stakeholders are consulted to help position the criteria ambitious enough to have a real impact on the environment and society, but also to ensure realistic level their implementation. Finally, these policies should identify the most critical links in the production chain. Of course, all companies must comply with the existing laws in the field of the environment, but they must also be transparent by providing certain information, to assess the management of their risks on this subject. A thorough analysis of the specific risks of each sector is then used to define performance criteria that companies and / or Projects must meet. These policies approved by the Executive Committee, have been widely disseminated to all trades. If they respond to a pending trade and managers have accurate prior to any decision making instructions, they nevertheless induce profound changes: it is necessary to train and support unfamiliar teams sometimes certain criteria 'very technical evaluation. They also assume a new type of dialogue with customers or companies in whom we want to invest: beyond financial performance criteria, it is now necessary to address much broader issues. Our philosophy is not to exclude a sector as a whole (except those that are subject to legal prohibitions) but we do not forbid, as a last resort, to exclude companies that do not wish evolve and take into account our policies. The approach taken must and will therefore continue in both applying to other sectors, if necessary by revising existing policies (e.g., nuclear policy could evolve following the stress tests carried out in European level) but also in the declining in specific sectors.

European Commission and Taxing policy on financial transactions!

The European Commission and the European Parliament are to authorize the implementation of an enhanced cooperation procedure between 11 Member States to implement a tax on financial transactions. The contours of the project are summarized below.

 EFSM: European Financial Stability Mechanism, EFSF: European Financial Stability Facility, Financial institutions: credit institutions, investment firms, organized markets, insurance companies, asset management companies, pension funds, holding companies, leasing, securitization vehicles. The expected charges is 0.1% for cash instruments and 0.01% for derivatives. The scope includes the "financial markets" broadly, carefully avoiding the financing of the real economy through the exclusion of the primary market and financial products distributed by the retail banking and insurance. However, the purchase and sale of securities by an individual investor will be taxed via the taxation of the financial intermediary through which this negotiation channeled. The project raises vehement reactions from the world of finance. European banks have made their estimates, which showed that the FTT will sign their death warrant. The French associations instead, sent the Minister of economy to measure on the fate of individual financial institutions, but very they are very alarmed about the impact of the tax on the financing of the economy. It is difficult to sort through the flood of objections that can be read at this time. I chose to retain both. The tax applies to the negotiation and not the transfer of ownership. It is true that the presence of intermediaries and clearing induces a succession of transfers of ownership in the post-market cycle.

But such transfers resulted in two orders (purchase and sale) that resulted in an execution. The purchase and sale will be taxed ... 2 times as expected. However, it will not be the same if the negotiation goes through the OTC market, involving broker-dealers who buy the securities for their own account before transferring to their clients. This leads to the second point. The European Commission assumes that the FTT will effectively eliminate altogether certain market activities. This is what emerges from the published 02/14/2013 impact study. Effect on the market for public debt as the primary market is not taxed investments "buy and hold" long-term types will be favored. The implication speculation on debt of countries in the Euro zone, it's over. Effect on the repo market: The overnight repo will be replaced by secured loans (non-taxable). Therefore also exit the repo, considered a particularly opaque part of the "shadow banking" and carrying systemic risk by successive transfers of collateral. Impact on the OTC derivatives market: there too, the Commission expects a significant drop in volumes, without being moved more than that. Effect on market makers, systematic and other proprietary traders internationals: taxation of transactions of all these intermediaries will lead to cascading effects.

These are fully paid and their consequence capture spreads, become unprofitable cease altogether. Finally, one may wonder if there is not in this project a public agenda and calendar, otherwise hidden, the less "discreet." The public agenda was a political component: meet the largely hostile public opinion in the world of finance, and tax issues: generating additional revenue that would help significantly reduce the contribution of the participating States to the EU budget. The hidden agenda is, if not eradication, at least in the drastic limitation of certain activities deemed unnecessary or predatory for the real economy. It is obvious that the realization of this hidden agenda will also have the effect of reducing tax revenues, but this effect appears here, too, assumed perfectly.

European Commission and Audit Reform

Force companies to change auditors periodically and prohibit auditors from providing other services are part of changes to draft legislation to open the market for audit services in the EU and to increase the quality and transparency adopted in Committee on Legal Affairs on 25 April 2013. The role of auditors has been questioned because of the financial crisis. "We need to regain the confidence of investors, who want quality audits and independent give them the assurances they need when investing in European companies," said Sajjad Karim (ECR, UK), in charge on the reform of the audit. The committee decided by 15 votes for and 10 votes against to open negotiations with the Council in order to reach a common text. The S & D, Greens / EFA and GUE / NGL voted against. Informal negotiations begin as soon as possible. The legislation would force auditors in the EU to publish audit in accordance with international standards reports.

For auditors of public interest entities, such as banks, insurance companies and listed companies, the committee agreed that audit firms should provide stakeholders and investors a comprehensive document containing all actions of the listener and providing a comprehensive manner, the accuracy of the accounts of the company. As part of a series of measures to open the market and to increase transparency, the committee voted in favor of the proposal to ban contractual clauses "only four major companies" that require the audit is performed by one of them. The public interest entities would be forced to launch a tender in the selection of a new auditor. To ensure that the relationship between the auditor and the audited company become too familiar, MEPs adopted a mandatory rotation rule that an auditor would have the right to audit the accounts of a company for 14 years maximum, a period that could be extended to 25 years if guarantees are provided.

The European Commission had proposed a period of six years, but a majority of MPs in the committee felt that it was an expensive and undesirable intervention in the audit market. To avoid conflicts of interest and threats to their independence, EU audit firms would be forced to comply with rules similar to the standards internationally. Most members of the committee considered the proposal for a general ban on the provision of other services, counterproductive to the quality of audits. They agreed that the only other services that could threaten the independence should be banned. They also approved a list of services that would be prohibited under the new legislation. Audit firms could, for example, continue to provide certifications regarding compliance with tax requirements but would no longer provide tax advisory services that directly affect the financial statements of the company. They could also be examined by the national tax authorities.

Europe needs long-term financing!

The urgency for Europe to reconnect with smart, sustainable and inclusive growth, which allows Europe to create jobs and, based on the areas in which it has a competitive advantage, gain market competitiveness world. To achieve this, it must meet investment needs large-scale and long-term. To finance these investments in the long term, governments and businesses, regardless of size, should have access to a long-term, predictable funding. The ability of the economy to make available such long-term funding also depends on the financial sector's ability to effectively provide users and relevant investment, effectively and efficiently, saving governments, businesses and households. This provision may be indirect, such as through banks, insurers and pension funds, either directly, via the capital markets. The long-term funding must be secured in such a way that supports structural reforms and help get the economy back on a path of sustainable growth. The financial crisis has reduced the capacity of the European financial sector to channel savings into investment long-term needs. It is important to ask whether in Europe, traditionally high dependence with regard to banking intermediation to finance long-term investments could be replaced by a more diversified system leaving more room for direct funding by capital markets and the involvement of institutional investors and alternative financial markets.

The task of ensuring the existence of an effective and efficient intermediation for long-term financing is complex and multidimensional. Recently, the Commission adopted a Green Paper on the financing of the European economy that includes public consultation. Its purpose is to launch a wide debate on how to increase the supply of long-term funding and diversify the financial intermediation system for long-term investment in Europe. The answers to the questions will enable the Commission to deepen the analysis of barriers to long-term financing to determine what policy measures could help to overcome them. The whole process could lead to different results and, in some areas it may be necessary to introduce new rules or modify existing ones, while in others, the role of the EU would to foster better coordination and promotion of best practices, or to provide specific measures to certain Member States in the framework of the European community.

The hurdles Fed has to overcome!

The persistent weakness of the U.S. economy - where deleveraging public and private sectors continues - has led to a stubbornly high unemployment and a lower than normal growth. The effects of austerity - a sharp increase in taxes and a sharp drop in public spending since the beginning of the year - further undermine economic performance. Indeed, recent data have silenced some officials of the Federal Reserve, who hinted that the Fed could start out the third round of quantitative easing, which is currently underway for a period indefinite. Given the low growth, high unemployment which fell only because discouraged workers are now leaving the workforce and inflation well below the goal of the Fed is not the time to begin to constrain liquidity. The problem is that liquidity injections by the Fed are not generating credit to finance the real economy, but to stimulate borrowing and risk-taking in financial markets. The bond sloppy risky under contractual commitments vague and excessively low interest rates is increasing, the stock market hit new highs, despite the slowdown in growth and the money goes mass to emerging markets high yield. Even the periphery of the Euro area has wall of liquidity triggered by the Fed, the Bank of Japan and other major central banks.

Because interest on state of the United States, Japan, the UK, Germany and Switzerland to absurdly low levels bond yields, investors are in a global search for yield. It is perhaps too early to say that many risky assets have reached bubble levels, and the levels of debt and risk-taking in financial markets have become excessive. However, the reality is that it is likely that credit bubbles and asset / equity form in the next two years, due to the accommodative U.S. monetary policy. The Fed has indicated that QE3 would continue until the labor market has improved enough probably early 2014, providing an interest rate of 0% until unemployment has dropped to less than 6.5%. Even when the Fed will begin to raise interest rates at some point in 2015, it will proceed slowly. In the previous tightening cycle that began in 2004, the Fed needed two years to normalize the policy rate. This time, the unemployment rate and household debt and public are much higher. A rapid normalization - such as realized in the space of a year in 1994 - would cause a crash in asset markets and the risk of a hard landing for the economy. But if financial markets already tend to bubble now, imagine the situation in 2015, when the Fed will begin to tighten its terms, and in 2017 at the earliest, when the Fed has completed the process of tightening. The last time interest rates have summers too low for too long during 2001-2004, and the normalization of rate thereafter was too slow, which had formed a huge credit bubble, housing and stock markets.

 We know the end of this film, and we may be ready to see more. The weakness of the real economy and the labor market, as well as high debt ratios, suggest the need to exit the monetary stimulus slowly. But a slow output may create a bubble of credit and asset as important as the previous one, if not more. The search for stability in the real economy, it seems, could again lead to financial instability. Some at the Fed - as chairman Ben Bernanke and Vice Chairman Janet Yellen - argue that policymakers can pursue two objectives: the Fed will raise interest rates to slow economic stability, while preventing financial instability (bubbles and credit created by the high liquidity assets and low interest rates) through supervision and macro-prudential regulation the financial system. In other words, the Fed will use regulatory instruments to control credit growth, risk taking and debt. But another faction of the Fed - led by Governors Jeremy Stein and Daniel Tarullo - argues that macro-prudential tools have not been tested, and that the debt limit in a part of the financial market only pushes liquidity elsewhere. Indeed, the Fed regulates banks, so that the liquidity and debt migrate to the informal banking system if bank regulation is stricter. As a result, Stein and Tarullo argued that the Fed has only one instrument of interest rates to tackle all the problems of the financial system. But if the Fed has only one effective instrument - interest rates - the two objectives of economic and financial stabilities cannot be pursued simultaneously.

Either the Fed continues the primary purpose of keeping rates low for longer and to standardize very slowly, in which case a huge credit bubble and assets would form in time, either the Fed focuses on the prevention of instability financial and increases interest rates much faster than the low growth and high unemployment have also requested, thus stopping an already sluggish recovery. Exit policies QE and zero interest rates the Fed will be treacherous: a too quick exit would cause a crash in the real economy, while a slow start out by creating a huge bubble and then cause a crash the financial system. If the output can be operated successfully partisan compromise Fed is more likely to create bubbles.