Thursday, 28 July 2016

More on how regulation can get in the way of competition

A follow up to

The CMA's inquiry into banking is coming to an end.

The challenger banks have written, Letter from 8 challenger banks, to say the main problem is their disadvantaged funding, via a regulatory formula that means they have to set aside much more capital than a large bank, something they thing is tied up in the Too Big to Fail Category. They say

In reply, Letter from Professor Alasdair Smith to 8 challenger banks, the CMA say two things.

First, "it is an important provisional finding of the CMA investigation that the funding advantages of the incumbent banks derive in large part from the inertia in the customer base. I believe that the remedies package we have put forward will create a more fluid market"

But second, in response to the regulation question they delegate it to others.

"In our view the issue should be taken forward by the bodies which have primary responsibility for the safety and soundness of the banking system"

" It would be in no one’s interests to create ambiguity about regulatory responsibility in this area in particular given the international context in which reform will be required. This is also the case for addressing the ‘Too Big To Fail’ issues you raise, which are being tackled by the Bank of England and the Financial Stability Board’s reforms to the resolution regime for global systemically important banks."

I had hoped the CMA inquiry was going to be a chance to address the Too Big To Fail issue. It would seem not.

(See also this exchange of letters with Sir John Vickers, Sir John Vickers (11.7.16) CMA response to Sir John Vickers (11.7.16)).

Examples of how basic research affects real products

From Gianni de Fraja, paper in the current Rand Journal of Economics
Optimal public funding for research: a theoretical analysis (pages 498–528)

Nelson's early work (1959) already reports many examples of basic research projects that illustrate these characteristics. Among the cases studied more recently, Moody (1995) describes in detail the numerous strands of basic research which allowed the creation of the ubiquitous CD. A Global Positioning System (GPS) navigation system would be far too inaccurate to be of any practical use without corrections of gravitational effects central to the theory of relativity (Haustein, 2009). The abstract mathematical problem of covering a surface with tiles lies at the foundation of our understanding and exploitation of superconductors (Edelson, 1992). Gauss's investigation into the distribution of prime numbers has led, with the contributions of some of the best mathematical minds over the course of two centuries, to the possibility of unbreakable cryptographic codes, without which e-commerce would not be possible (du Satoy, 2003).10

Friday, 10 June 2016

What is the multiplier effect of this government spending?

From the NAO, The Sale of Eurostar, 

In 2015 the Government sold its share in Eurostar.  Here's the NAO report.

In April 2014 the DfT appointed Freshfields as its legal adviser. The focus of Freshfields’ initial work was to transfer the shares from DfT to another government department. Eurostar was part of a consortium bidding for the East Coast franchise, which DfT was awarding later in 2014, so it was agreed that to avoid any perceived conflict of interest the shares should be transferred away from DfT. The legal advisers were originally asked to prepare to transfer the shares to the Department for Business, Innovation & Skills (BIS) but a few weeks before the transfer took place the government decided to transfer the shares to HM Treasury instead.

How much did this cost? Freshfields charged £0.511m for this task (figure 9, p.23).  The NAO says that the money was good value and there was no overcharging etc.  But I wonder what the multiplier effect of this spending was?

Behavioural Economics versus (Rational) Economics

I liked this slide as a summary of differences from a World Bank Conference on the State of the World.