UK Banks to be Briefed on Anthropic's Mythos Cyberthreat

The Bank of England, UK National Cyber Security Centre, HM Treasury and FCA will brief banks, insurers and exchanges in the UK on the cyber implications of Anthropic's new (non-publicly released) AI model, Mythos, which was revealed in April.  

The briefing will include CEOs of the UK's eight largest banks, two insurers and four financial infra providers. 

The model can exploit new-found vulnerabilities autonomously when instructed to do so. Bruce Schneier has observed this is "very much a PR play by Anthropic". It is curious that Anthropic seem to have not built in any guardrails against offensive security.

Hagerty extols virtues of the GENIUS (Stablecoin) Act

Senator William ("Bill") Hagerty (Republican), who had a pre-politics career at the Boston Consulting Group, is pushing for the GENIUS Act to be passed.

The GENIUS Act stands for Guiding and Establishing National Innovation for US Stablecoins and per Hagerty "creates a strong, forward-looking regulatory framework to modernize our payment systems and affirms the dominance of the US dollar". 

The UK has been proactive in creating conditions for stablecoin development in the UK but has come under criticism for overly constraining market development.

As a sidebar, stablecoins are digital assets which can be used to make payments. These so-called "coins" can be created technology companies rather than traditional banks and are backed by equivalent currency in a 1:1 ratio. They are thus less volatile than traditional cryptocurrencies.

UK Cuts Rates to 0.25%

The UK cuts rates from 0.75% to 0.25% (lowest level in history). Further measures are expected to be announced in the Budget.

New Bank of England Governor (Bailey) Appointed

Andrew Bailey, chief executive of the FCA, has been appointed as the new governor of the Bank of England. The move is not without controversy, with the FCA being criticised over its supervision of Neil Woodford (formerly fund manager at Invesco Perpetual, since rebranded to Invesco)'s flagship fund which was suspended in June 2019 and eventually closed.

Bank of England Governorship Up for Grabs

With Mark Carney due to step down, the governorship for the Bank of England is up for grabs.

Names "in the frame" include Agustin Carsens, former Central Bank governor of Mexico who is now general manager of the BIS, and Raghuram Rajan, former Central Bank governor of India.

American economist Jason Furman, who has a PhD from Harvard and is currently a Professor at HKS and was Barack Obama's Chief Economic Adviser for eight years, has also been tipped as being in the race. He has also worked at the CEA (Council of Economic Advisers).

Other names include Andy Haldane, Chief Economist at the Bank of England, whose six-year term at the BoE ends on 11 June 2020. A founder of "Pro Bono Economics" and author of 4 books, he is also a Visiting Fellow at Nuffield College, Oxford. He has a Fellowship of the Academy of Social Sciences (FAcSS). He is also Chair of the UK government's Industrial Strategy Council.

Solvency II Rules Set for 2015 Launch

Solvency II Rules due in 2015 will set strict rules for insurers; where they will be expected to lay out detailed risk and capital plans. "Inadequate or opaque models" would not get regulatory approval, warned BOE boss Mark Carney.

The technical rules for Solvency II are managed by EIOPA, the European regulator for insurance and occupational pensions.

The Incoming Governor of the Bank of England

Ex-Goldman Sachs Mark Carney will become Governor of the Bank of England on July 2013. He studied at both Harvard and Oxford. As Governor of the Bank of Canada, he explained that his "fundamental priority" was to ensure "low, stable and predictable inflation".

China Warns of Inflationary Risks of Global QE

Across Asia central banks, including PBOC Governor Zhou Xiaochuan, are expressing concerns of the inflationary risks of QE3. China has cut rates twice (June and July 2012) as growth has slowed. The RRR has been cut thrice since late 2011. To decipher the economic comments on inflation we need to be au fait with the following terms and concepts.

Core versus Headline

Headline inflation measures total inflation in the economy. Core inflation removes factors like food and energy which can experience price spikes and may thus be perceived as a more robust measure of inflation.

Relationship between Inflation and Credit

The book "An Inflation Primer" by Melchior Palyi is an interesting one with respect to bond markets. It describes the difference between inflationary and non-inflationary credit.

Investing in Inflation

It is possible to "invest" in UK inflation via the vehicle known as "index-linked gilts". These differ from "conventional" gilts in that the principal and S/A coupon payments are adjusted in line with the RPI (Retail Price Index). Gilts issued before July 2002 have their coupons calculated by the Bank of England, from July 2002 they are calculated by the UK DMO. RPI was 2.9% in August 2012.

How 3Rs Impact the Global Currency Markets

Statutory versus Voluntary Reserve Ratios

Some countries have Required Reserve Ratios (RRRs) that are statutorily enforced whilst other countries have voluntary reserve ratios.

Required reserves apply to commercial banks and usually take the form of cash or deposits made with a central bank. If a bank holds more than the required reserve, it is said to hold excess reserves.

Variation by Country

The Bank of England used to have a reserve ratio but abandoned it in the early 1980s. Canada also has no reserve ratio requirement. The US Federal Reserve has a reserve ratio that operates in tranches.

Relationship between Reserve Ratio and Inflation

The greater the reserve ratio (and correspondingly the greater the reserves held at the central bank) the less money there is for individual banks to loan, leading to lower money creation and potentially higher purchasing power of the money in circulation.

All things being equal, there is an inverse relationship between the Reserve Ratio and Inflation.

Bigger RR -> potentially lower inflation
Lower RR -> potentially higher inflation

Reserve Ratios for Inflation Control

The People's Bank of China (PBC or PBOC) alters the reserve ratio in order to control inflation. Standard Chartered anticipates a RRR cut due to "easing headline inflation" and recommends USDCNH puts. The Reserve Bank of India also controls the Cash Reserve Ratio (CRR) to control the money supply and therefore inflation.

Central Bank Slang: Near Money or Quasi Money

Reading central banking websites you will come across many unusual economic terms, such as near money or quasi-money - which refers to stuff that's not cash, but very close to cash,

They mean one and the same thing, namely highly liquid assets that can be easily converted into cash.

The IMF and World Bank do surveys of money and quasi-money in the world financial system.

Examples of quasi money would be savings accounts, money market accounts, bonds near their redemption date, government T-bills, foreign currencies (especially widely traded ones like USD, JPY and EUR).

New Banking Act comes into Force

The new banking act gives greater powers of intervention to the BoE. The Bank will be allowed to give hidden help to stricken banks to maintain financial stability. Critics attack the secrecy aspect of the Act saying it could harm consumers.