BIOECONOMY, Climate-Nature-Finance, Financial Reforms, Economic Reforms, Tax Reforms

Johannesburg - Moody’s has on Friday simultaneously affirmed Eskom’s long-term foreign currency rating with a negative outlook and downgraded the company’s standalone credit quality by one notch.

In their statement, Moody’s states that the affirmation of Eskom’s Baa3 rating with a negative outlook reflects that the state-owned group continues to be of critical strategic and economic importance to South Africa as the country’s dominant electric utility.

This view is reflected in the “high” level of government support factored in the rating under Moody’s rating methodology for government-related issuers.

Moody’s also points out that Eskom’s Baa3 senior unsecured debt ratings relate to bonds and a note programme that are not supported by the government guarantee.

Moody’s attributes the downgrade of Eskom’s standalone credit quality to uncertainty over the evolution of Eskom’s investment programme and financial profile over the medium term.

It sees limited potential for improvement in the company’s weak financial metrics based on the National Energy Regulator of South Africa’s (Nersa’s) multi-year price determination decision.

Eskom is, furthermore, facing significant challenges in relation to the
management of operating costs in the context of a stretched electricity system until new generation comes on stream.

“Eskom notes Moody’s affirmation of our credit rating. Although the downgrade of our standalone credit quality is a challenge, we remain focused on developing a satisfactory response to Nersa’s decision,” said Caroline Henry, Eskom’s acting chief
financial officer in a statement.

Eskom Chief Executive Brian Dames said Eskom is comfortable with the measures it is taking, with the continued support of its shareholder, to move towards a more sustainable financial profile over the
long-term.

In addition, the Reserve Bank governor, Gill Marcus has warned that South Africa’s economy may not grow as expected due to electricity supply shortages.

This is one of the reasons leading to the International Monetary Fund lowering its growth forecast from 2.8% to 2%.
 
According Arthur Chien, CEO of Talesun Energy, a supplier of solar energy, said in reaction to Moody's affirmation that it highlights the need to reduce South Africa’s dependence on energy sources such as coal fired power stations.

These power stations are currently under strain and the use of renewable sources into its energy mix is needed.

Chien said that as the need for electricity increases, the nation needs to look for alternate energy sources, to avoid widespread power shortages from occurring.

"South Africa is a country that has the potential to produce abundant amounts of solar energy due to the magnitude of sunshine it receives," he said.

"In addition, the beauty of solar energy is that it is renewable and therefore sustainable for the environment."

Port Elizabeth - Anyone can be forgiven for thinking that the JSE made a mistake last week when they calculated their indices. But it is true - shares reached another record high last week, despite the fear of a recession and a pile of other bad news.

Economists seem divided on the possibility of an economic recession, according to the formal definition of two consecutive quarters in which the gross domestic product shows a decline.

The fact remains that the economy is in bad shape, whether economic growth for the three months to June comes in at a positive 0.5% or a negative 0.5%.

Every single economic indicator that was announced last week was worrisome. The SA Chamber of Commerce said that their business confidence index declined to the lowest level in 14 years, the purchasing managers’ index as calculated by Kagiso dropped to the lowest level since 2009 [just after the international economic crisis] and during the previous week we saw very high inflationary pressures in the producers price index.

In addition, Naamsa announced that new car sales declined by nearly 10% in May compared to a year ago as not even a flood of new vehicle releases could lure buyers into showrooms and tempt them to sign five-year credit agreements.

Neither does company management tout a lot of good news. Sasol [JSE:SOL] just got slammed with a R534m fine by the competition authorities which found that its local pricing structure for certain plastic chemicals is unfair to local buyers.

A change in the pricing structure throughout Sasol - and perhaps at other big companies – will affect profitability and dividend flow.

The strike at platinum mines is still continuing with little indication of a solution. Latest estimates show that platinum producers lost more than R20bn in revenue and SA lost R20bn worth of foreign exchange, and the multiplier effect of R9bn in lost wages and a couple of billion in lost taxes circulating through the economy.

The week ahead

In the week ahead, StatisticsSA will announce mining output and manufacturing output for April, numbers which are bound to let economists revisit their views on the state of the economy. Rand Merchant Bank and the Bureau for Economic Research will announce the latest business confidence index, which will probably show the same trend as similar indices announced last week.

Rating agencies Finch and Standard & Poor are scheduled to release new credit ratings for SA. They are bound to mention their take on the economy and the effect of the platinum strike in line with that of Moody’s a few weeks ago.

A hefty downgrade will pose risks for the bond and stock market as SA can scarcely afford any significant capital outflow at the moment.

Given the current economic reality, it is becoming increasingly difficult to explain the repeated new record highs on the JSE and the current high valuations of shares. It is striking that only small increases in the shares prices of a few big companies are driving the market higher.

Last week, BHP Billiton [JSE:BIL] increased by less than 1% and Anglo American [JSE:AGL] ended the week flat. SAB Miller [JSE:SAB] declined 2.5% and Bidvest fell 2.8%. Angloplats [JSE:AMS] rose 4.2 % and Steinhoff International [JSE:SHF] increased 3.3%. Richemont [JSE:RCH] dropped 2% compared to a week ago and British American Tobacco SA [JSE: BTI] fell 2%.

Large index contributor Naspers [JSE: NPN] and Tiger Brands [JSE:TBS] increased by less than a percent each. Banking shares helped the index along with increases of nearly 4% in the share prices of most of the larger banks.

African Bank [JSE:ABL] still saw only one-way traffic on the market screens as the share dropped another 13% last week to only R7.30 after its recent bad results. Sanlam [JSE:SLM] announced that earnings increased by 23% as a strong share market boosted portfolio values and their relevant management fees on the bigger portfolios.

The week ahead, it seems, is going to be very interesting.

MOODY’s on Tuesday downgraded the credit rating of four top South African banks, after the government was forced to bail out a troubled lender.

In a statement, the ratings agency said it had downgraded Standard Bank, Absa, FNB and Nedbank by one notch to Baa1, in a move sure to raise more questions about the health of the vital sector.

Shares in unsecured lender African Bank Investments Limited (Abil) were suspended after the Reserve Bank announced that Abil would be placed under curatorship.

The Bank took Abil out of the hands of its management and put a curator in charge. It also rounded up the support of the big banks to underwrite a capital raising for Abil’s "good" bank.

Moody’s also slashed the financial strength rating of Capitec — the largest unsecured lender left standing after African Bank’s collapse — by two notches late on Friday.

INTRODUCTION

Moody's credit analysis focuses on the fundamental factors and key business drivers relevant to an issuer's long-term and short-term risk profile. The foundation of Moody's methodology rests on two basic questions:

1. What is the risk to the debtholder of not receiving timely payment of principal and interest on this specific debt security?

2. How does the level of risk compare with that of all other debt securities?

Moody's measures the ability of an issuer to generate cash in the future. Determining the predictability of future cash generation is therefore the primary focus of Moody's analysis. This determination is built on a careful analysis of the individual issuer and of its strengths and weaknesses compared to those of its peers worldwide. An examination of factors external to the issuer is also conducted, including industry- or country-level trends that could impact the entity's ability to meet its debt obligations. Of particular concern is the ability of management to sustain cash generation in the face of adverse changes in the business environment.

 Key Contacts

Asia Pacific

Europe, Middle East and Africa (EMEA)

Latin America

United States and Canada

THE BENEFITS OF A MOODY’S RATING

There are several ways in which investors use ratings that, in turn, provide value to issuers. For many investors, ratings are a critical element in pricing securities and are often used as a benchmark for setting investment guidelines. With dependable, globally comparable opinions on credit risk in hand, institutions may be open to a wider variety of securities investments from a broader array of firms.

1) Wider Access to Capital

Moody’s credit opinions are widely disseminated, broadly used and clearly understood by institutional investors in Asia and throughout the world, making an issuer’s debt more attractive to a wider range of potential buyers. In today’s global markets, a rating is effectively a “credit passport” that can provide access to both domestic and international pools of debt capital.

2) Financing Flexibility

This wider market access typically translates into reduced funding costs, particularly for higher-rated issuers. The credibility of Moody’s ratings may also allow rated issuers to enter the capital markets more frequently and more economically and to sell larger offerings at longer maturities.

3) Market Stability

Moody’s ratings and research reports help to maintain and stabilize investor confidence, especially during periods of market stress. For example, a news item could adversely affect the prices of a company’s outstanding bonds, even if the news has no real impact on the bonds\' long-term creditworthiness. The reassurance of a Moody’s rating and accompanying analysis of the situation can help to alleviate investor concerns about this type of “headline risk”.

MOODY'S RATING PROCESS

• In the course of the rating process, a Moody's analyst:
• Gathers information sufficient to evaluate risk to investors who might own or buy a given security,
• Develops a conclusion in committee on the appropriate rating,
• Monitors the security on an ongoing basis to determine whether the rating should be changed, and
• Informs the marketplace of Moody's actions.

The rating process involves an active, ongoing dialogue between the issuer and Moody's analysts. Once published, Moody's ratings are continuously monitored and updated through dialogues and regular meetings, during which issuers are encouraged to raise any concerns and present all materials that are pertinent to the analysis.

If an issuer is new to Moody's, the rating process begins with an introductory meeting or teleconference call. The purpose of this initial discussion is to introduce Moody's rating process and methodology, and to provide additional information regarding the specific sorts of data that will be most useful in developing an understanding of the organization. Our goal is to be as transparent as possible, and to ensure that issuers understand Moody's rating methodology and process...more

• Credit Research & Risk Measurement
• Economic & Consumer Credit Analytics
• Structured Analytics & Valuation
• Enterprise Risk Management
• Professional Services
• Risk Qualifications
• Training & Certification

As the World Bank prepares to gut its safeguard policies and budget cuts are suspended over the heads of an anxious staff, a leaked assessment of the Bank’s safeguard system by the Bank’s internal audit department (IAD) describes an alarming state of disarray. The report validates long standing Independent Evaluation Group (IEG) and civil society concerns that World Bank’s commitment to “do no harm” to people or the environment has become increasingly compromised by an obscure and underfunded system that allows safeguards to be routinely shoved to the margin of decision making.

With proposed reforms to World Bank Safeguard policies likely to shift investment to instruments with fewer clear protections, an even greater burden will be placed on World Bank safeguard staff. The IAD reports describes a safeguard structure at the World Bank that may be unprepared to assume these responsibilities due to lack of adequate budget, independence, incentives and line management protection to do their job effectively.

Read the full report here.

This is the 2nd edition of the original Guide which was issued in 2005. This edition has been updated to reflect changes at the ADB, in particular with reference to the ADB Public Communication Policy, which became effective in September 2005. The toolkit has also been translated into Bangla and Bahasa Indonesia and is available below.

About the ADB Toolkits

The ADB Toolkits series is intended to help those unfamiliar with the Asian Development Bank to gain an understanding of the institution, the work it does, and why it is important for civil society groups to be aware of its operations. The Toolkits provide an introduction to the ADB, including information about the ADB’s structure, the types of services it provides to developing and transitional country governments in Asia and the Pacific, the kinds of projects and programs it funds, and the support it provides to private sector companies investing in the region.

The Toolkits series also serves as a resource for activists who are already involved in monitoring ADB operations. The Toolkits include information that will assist activists in their advocacy and lobbying of the institution, including a breakdown of the ADB’s policy framework, guidance on how to make use of the ADB’s new accountability mechanism, and opportunities for lobbying ADB Board of Directors and Management.

Introduction to the ADB Toolkits

Multilateral Development Banks (MDBs) are the largest source of development finance in the world, typically lending between US$30-$40 billion to low and middle income countries in any given year. The ADB provides billions of US dollars in loans to its Developing Member Countries (DMCs). This allows it to have enormous influence over its DMCs’ development objectives. In some cases the ADB may actually have more influence over developing country budgets and operations than a country’s own elected officials. The vast majority of the funding provided is in the form of loans. DMCs, and thereby their citizens, are required to pay back this money, regardless of whether the projects are successful or not. At times, not only are the projects unsuccessful, but local communities are left to face new challenges from harm caused by projects and citizens face an increased debt burden.

For the Asia-Pacific region, the ADB is the third largest donor (after the Japanese government and the World Bank) lending approximately $5 to $6 billion a year to its developing member countries. The ADB is increasingly focused on financing private sector operations, supporting structural adjustment programs prescribed by the IMF, and implementing global trade rules. It is startling to note that this agenda is implemented by an institution which is plagued by an inadequate governance structure, using a weak safeguard policy framework, and extending loans to governments that are mostly unaccountable to their citizens. The ADB is able to do this by keeping a low profile and escaping public scrutiny. While the international movement monitoring the international financial institutions has been successful in forcing the MDBs – particularly the World Bank – to increase democratic spaces for citizens and to adopt a framework of policies that protect the environment and promote sustainable development, the ADB has not featured prominently in this reform agenda.

It is imperative that Asian civil society focus its attention on the ADB. Having assumed for itself a role as promoter of regional cooperation through its Regional Cooperation Strategies, the ADB is shaping the development agenda of the region’s fledgling democracies, communist governments, and military dictatorships. The ADB continues to highlight the potential benefits of its lending while glossing over its adverse environmental and social impacts. ADB lending achieves even greater significance in the context of the understanding reached by MDBs to re-commit themselves to high risk/high reward infrastructure projects in the near future.

The Federal Deposit Insurance Corp. and Federal Reserve announced yesterday that they had finished their reviews of the “living wills” filed by 11 large US banks, intended to give regulators a blueprint for unwinding the institutions in a failure scenario. They found the submissions seriously wanting.

It makes sense that regulators need a window into how they might achieve an emergency dismantling of these sprawling financial institutions, with assets in the trillions of dollars and business units peppered all over the world. An orderly wind-down should always be preferable to a government bailout, but regulators need confidence in the first option to rule out the second one when a gargantuan bank is on the brink of collapse.

Critics of the living will exercise argue that constructing a death plan for banking giants may be a fool’s errand. That’s because it’s not easy to predict how bank executives, clients, counterparties, and even regulators would react in the event of a full-blown crisis.

Sanford Bernstein bank analyst Brad Hintz tells Quartz that painting dire scenarios on paper can be starkly different than the reality. “With any larger financial institution you’re always going to end up with unknown, unknowns,” says Hintz, who formerly worked at Lehman Brothers as its chief financial officer and at Morgan Stanley as treasurer.

There might even be scenarios in which having a bank (or banks) adhere to a living will has the opposite effect of injecting calm into a terror-ridden market. Regulators might conclude that they have to keep an institution alive, regardless of whether an end-of-life directive exists.

“You have to role play these scenarios as a regulator at the Fed or the Treasury. If the world is coming to an end, you’re going to have to invoke your best Dirty Harry and ask yourself if you’re feeling lucky today,” Hintz quips, referring to the hard-charging police inspector played by Clint Eastwood.

In some ways, the challenge of constructing a living will gives credence to the argument that some institutions may simply be too big to fail and should be broken up. Indeed, regulators already have threatened to invoke their break-up power if the big banks that failed the first round of reviews don’t deliver on their next attempt in July 2015. But coming up with a credible plan, as regulators have charged the banks to do, may be an unrealistic goal given the complexities of the firms.

FBR Capital markets bank analyst Paul Miller perhaps put it best for the Wall Street Journal (paywall): “To sit there and try to come up with a plan to try to orderly unwind a major institution of this size, I don’t know if it can be done.”

But regulators seem to have embraced the crisis-management maxim espoused by former Treasury Secretary Tim Geithner in his book Stress Test: “plan beats no plan.”

JOHANNESBURG (Reuters) - South Africa's central bank has disputed credit rating agency Moody's downgrade of Capitec Bank, saying it disagreed with the rationale behind the two-notch rating cut for the local lender.

Moody's cut the financial strength rating of the lender to D from D+ on Friday and deposit ratings to Ba2/NP from Baa3/P-, citing concerns about its exposure to risky consumer lending.

Worries about consumer lending in Africa's most developed economy are growing after the South African Reserve Bank launched a $1.6 billion rescue of African Bank Investments last week.

"While the bank respects the independent opinion of rating agencies, we do not agree with the rationale given in taking this step," Hlengani Mathebula, spokesman for the Reserve Bank said in a statement.

"The Moody’s statement justifies the rating action further on the basis that Capitec follows a similar business model to African Bank. This is incorrect, the two lenders do not share the same business model."

Capitec also disagreed with Moody's downgrade, with its financial director calling it "unfair and inappropriate" in a statement issued on Saturday.

"Capitec Bank does not agree with the downgrade and would like to place on record that the business is healthy, growing according to plan, and its loan book is performing within its risk appetite," said Andre du Plessis, Capitec Bank's financial director.

Capitec said that unlike African Bank, which depends almost exclusively on high-margin but risky unsecured loans, it has diverse revenue streams that include more than 5 million banking clients.

About 2.2 million of these clients receive their salaries through the bank, giving the lender insight into their cash flow when considering whether to make loans to them, it said.

No one at Moody's was available to comment on Sunday. It had said on Friday that profits from unsecured loans make up the bulk of Capitec's loan book.

"This narrow undiversified lending focus remains affected by the recent economic slowdown, given reduced consumer affordability and high consumer indebtedness," Moody's said.

THE aftershocks from last week’s collapse of unsecured lender African Bank have continued to ripple through SA’s financial services sector, with all four major banks downgraded on Tuesday night by Moody’s and placed on review for further cuts.

The rating agency, which last week cut Capitec’s credit rating, said the Reserve Bank had not fully protected African Bank’s creditors, raising questions about the quality of future support for other banks should they need it.

The “likelihood of systemic support being provided in the event of need for these banks, to fully protect senior creditors and depositors, is now materially lower than previously thought, as implied by the South African Reserve Bank’s recent approach in resolving” African Bank, Moody’s said.

 African Bank creditors are taking a 10% haircut on the bail- out from the Reserve Bank.

 African Bank was placed under curatorship on August 10 after it said it would need to raise R8.5bn to bolster its balance sheet and expected to report a R6.4bn loss, causing the share to plummet and the Reserve Bank to step in.

Moody’s said further downgrades to Standard Bank, FirstRand, Absa and Nedbank were possible because of weak local economic conditions.

Kokkie Kooyman, head of Sanlam Investment Management Global, said the downgrade could scare off investors in South African bank bonds because of the risk of loss introduced by the 10% haircut enforced on bondholders.

“What they (Moody’s) say is, if you are invested in a South African bank bond and there is a risk of a default, the risk of a haircut is now real,” he said. “Maybe the Reserve Bank did not spell out enough to the bondholders why they imposed the 10% haircut, and under what circumstances they would do it in the future.”

The Reserve Bank disagreed with Moody’s, saying the agency’s concern over the lower likelihood of sovereign systemic support was “in sharp contrast to the support actually provided” by it to African Bank.

“Notwithstanding this downgrade, Moody’s has confirmed the resilience of the South African banking system and in their own view … notes the broad resilience demonstrated by South African banks in the past … and recognises the solidity of key system financial metrics.” It said South African banks were well capitalised, and remained healthy and robust.

Absa said it supported the Reserve Bank’s view that SA’s banking sector remained robust. It said its earnings and business model were well diversified both in SA and across Africa.

Standard Bank agreed and said its overall liquidity position remained very strong.

 FirstRand said there were no indications other local banks had been negatively affected by the specific issues at African Bank.

 Nedbank said it viewed the cut “as being likely to have very little effect on Nedbank or any of the other South African banks…. We do not think it will influence our funding costs in any way.”

Meanwhile, the Financial Services Board (FSB) has allowed money market funds and other funds exposed to African Bank debt to ring-fence their exposure in a new portfolio known as a “side-pocket”.

The plan is to reduce the capital outflow from money market funds and other funds, which was largely spurred by investors who did not want exposure to African Bank debt.

 Jurgen Boyd, the deputy executive officer at the FSB, said it had been monitoring the outflows in the money market and other funds as people moved to avoid exposure to African Bank debt.

“Our statistics indicate a net outflow of R10bn from August 11 to August 18 in the money market funds,” he said.

The FSB had approved applications from 20 funds to ring- fence their exposure and was looking at 23 other applications. Once all had been approved, the value of the African Bank debt that would be “side-pocketed” was about R4.3bn, he said.

SA's banking sector is healthy - Sarb

The South African Reserve Bank has disputed Moody's decision to downgrade Standard Bank, FirstRand, Absa and Nedbank and put them on review for further cuts.

• Warning against overreaction to banks' downgrade
• Moody's cuts ratings of four more top banks
• Sarb defends Capitec after downgrade

International ratings agency, Moody’s has downgraded the long term local-currency deposit ratings of South Africa’s four largest banks.

Standard Bank of South Africa -1.22%, Absa Bank Limited 0.00%, FirstRand Bank Limited -0.57% and Nedbank Limited -0.59% have been downgraded by one notch to Baa1 from A3.

The banks’ long term national scale deposit ratings have also been downgraded to Aa3.za from Aa2.za.

“The one notch downgrade of the local-currency deposit and senior unsecured debt ratings reflects Moody’s view of the lower likelihood of systemic support from South African authorities to fully protect creditors in the event of need,” Moody’s said.

“This updated opinion was prompted, most recently, by the actions taken by the South African Reserve Bank (SARB) in response to the abrupt loss of creditor confidence in African Bank Investments Limited 0.00% (ABIL).”

(READ MORE: Moody’s downgrades ABIL’s African Bank)

The ratings agency added that this policy response addressed related liquidity and capital issues but that the inclusion of a bail-in of senior unsecured bondholders and wholesale depositors indicates the regulator’s willingness to impose losses on creditors.

“This needs to be reflected in Moody's ratings, as debt ratings speak to both the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default,” said Moody’s.

“Similarly deposit ratings speak to banks’ ability to repay punctually uninsured deposit obligations, including wholesale deposits.”

POSSIBILITY OF A FURTHER DOWNGRADE

Moody’s stated that the rating review for further downgrade reflects its forward-looking concerns that the increasingly challenging economic conditions in South Africa will weigh on the banks’ financial performance.

“Although Moody’s acknowledges the banks’ historically resilient financial performance, the rating agency expects that asset quality metrics and earnings-generating capacity could come under pressure amid increased loan loss provisions for retail and corporate lending,” it said.

“In particular, Moody’s considers that South Africa’s slowing economy, high inflation, labour unrest, still highly leveraged consumers and reduced consumer affordability amid increasing interest rates will continue to pressure borrowers’ loan repayment capabilities.”

In addition to the four banks, Investec Bank’s local-currency and foreign-currency deposit ratings of Baa1/P-2 and its national-scale deposit ratings of Aa3.za/P-1.za have also been placed on review for downgrade.

The agency indicated that the review would focus on a forward-looking assessment of the risk of asset quality deterioration and higher credit costs, the banks’ recurring earnings-generating capacity in light of challenging operating conditions, and negative pressure on their capital levels and funding sources.

WE DO NOT AGREE WITH RATIONALE: SARB

The SARB promptly responded to the announcement by Moody’s stating that it does not agree with the rationale given nor does it agree with the assessment it is based on.

“Once again, Moody’s refers to a lower likelihood of sovereign systemic support based on decisions taken recently in relation to African Bank Limited. This concern stands in sharp contrast to the support actually provided by the SARB,” it said.

(READ MORE: Reserve bank disputes Moody’s downgrade of Capitec)

“Notwithstanding this downgrade, Moody’s has confirmed the resilience of the South African banking system. With a capital adequacy of 14.87 per cent, impaired advances to gross loans and advances of 3.57 per cent and a return on equity of 14.25 per cent, the South African banking sector remains healthy and robust.”

FIRSTRAND BANK’S (FRB) REACTION TO DOWNGRADE

In response to the announcement, FirstRand Bank said that the rating action brings its local currency deposit and debt ratings in line with its Baa1 foreign currency deposit rating, its standalone credit assessment of baa1 and the Baa1 bond rating ascribed to the South African government by Moody’s.

“FRB confirms that the rating actions announced today are linked to Moody’s assessment of the South African banking industry as a whole and is not a reflection of any fundamental changes in FRB's financial strength, earnings resilience or credit quality,” it said.

“FRB supports the SARB’s view that South Africa’s banking sector remains healthy and robust, and there have been no indications that other South African banks have been affected negatively by the specific issues around African Bank.”

The Bank Information Center, news media outlets, and other organizations have responded to the World Bank’s most recent safeguard draft immediately before and since its release on July 30. Here is a quick list of reactions.

Media stories:

• Guardian: Leaked World Bank lending policies ‘environmentally disastrous’
• Reuters: World Bank review shows flaws in social, environment safeguards process
• Reuters: Change to big World Bank aid projects could cede policing to governments
• IPS: World Bank Board Declines to Revise Controversial Draft Policies (EN) (ES) (PT)
• Huffington Post: World Bank Faces Pushback Over Leaked Safeguards
• Huffington Post blog: World Bank Poised to Deny Africa’s Indigenous Peoples Their Rights
• Huffington Post blog: The World Bank’s New Environmental and Social Policies Fail to Tackle Climate Change
• Huffington Post blog: The World Bank Can’t Sacrifice the Poor to Stay in the Game
• Devex: 4 questions about World Bank safeguards
• Devex: World Bank safeguards: Pushing more money out the door at the expense of the poor?
• Think Progress: World Bank Preparing To Scrap Protections For The Environment, Indigenous People
• The Hindu: World Bank rolling back safeguards: leaked report
• New York Times: Letter to the Editor
• Mint Press:World Bank Accused Of Transferring Safeguards Responsibility To Borrowers
• Foreign Policy: Development Déjà Vu: How can the new BRICS bank avoid repeating the same mistakes and egregious human rights violations of the World Bank?
• Balkan News Agency: Albanian Government shall ask the World Bank to change its safeguard policies for women and LGBT people
• Gestión:ONG de todo el mundo piden al Banco Mundial que rechace plan que reduce protecciones ambientales
• El Comercio: Lo ambiental no les pesa a los bancos
• Chirapaq:Gobiernos estarían extentos de respetar territorios indígenas
• La Región: ¿Se viene el paquetazo ambiental del Banco Mundial?
• La Mula: ¿Qué se trae el Banco Mundial?
• Info Región: Nuevas salvaguardas del Banco Mundial pondrían en riesgo a pueblos indígenas
• Servindi: Banco Mundial prepara paquetazo anti ambiental

Press releases:

• World Bank Breaks its Promise Not to Weaken Protections for the Poor and Planet (BIC)
• World Bank: Reject Plan to Roll Back Safeguards (EN) (FR) (ES)
• World Bank turns Its back on rights protections for the poor, global civil society response gathers momentum (IDI)
• World Bank moves to undermine the rights of indigenous peoples (FPP)
• Press release on Sexual Orientation and Gender Identity and Expression in World Bank safeguards

CSO statements and analysis:

• CSO Statement: Significant concerns with the proposed World Bank safeguards for indigenous peoples (EN) (FR) (ES)
• CSO Statement: World Bank’s Draft Safeguards Fail to Protect Land Rights and Prevent Impoverishment (EN) (FR) (ES)
• CSO Statement: Dilutions in proposed Biodiversity standard
• Bank on Human Rights Coalition statement to Executive Directors (EN) (ES)
• ITUC: Major weaknesses in World Bank’s draft labour standards safeguard
• BIC issue analysis
  1. Environmental and Social Assessment
  2. Child Rights
  3. Gender and Sexual Orientation and Gender Identity and Expression (SOGIE)
  4. Disability
  5. Climate Change
  6. Five Ways the World Bank Safeguards Undermine the Pelosi Amendment

CSO Letters:

• Egyptian CSO Letter to Executive Director Merza Hasan (EN) (AR)
• Latin American CSO Letter to Board (EN) (ES)
• Mesoamerican CSO Letter to Executive Director Juan Jose Bravo
• Joint Indian CSO Letter to Executive Director Mukesh Prasad
• National Alliance of People’s Movements (India) Letter to Executive Director Mukesh Prasad
• Indonesian Trade Union Letter to Executive Director Sundaran Annamala
• Nepalese CSO Letter to Executive Director Sundaran Annamala
• Alyansa Tigil Mina (Philippines) Letter to Executive Director Roberto Tan
• Philippine Coalition on the CRPD Letter to Executive Director Roberto Tan

CSO web updates:

• ITUC: World Bank’s potential big step backwards on workers’ rights
• BIC: Fixing World Bank Incentives for Effective Safeguard Implementation
• BIC: The World Bank Moves to Weaken Its Protection for the Poor
• REDD Monitor: If the World Bank dismantles its safeguards, what would that mean for REDD?
• AIDA: Letter presenting Latin American civil society organizations’ concerns on the dilution of the World Bank’s safeguards policies(EN) (ES)
• AIDESEP: Documento de políticas y normas socioambientales del Banco Mundial amenazan derechos indígenas
• FUNDEPS: El Banco Mundial busca debilitar los estándares socio-ambientales en sus proyectos: Respuestas de Organizaciones de la Sociedad Civil
• Conectas: Bad Example: New World Bank Framework Rolls Back Human Rights Protections (EN) (PT)

Official documents:

• First draft of Environmental and Social Framework (ESF) for consultation
• Q&A on the First Draft
• Phase 2 consultation plan
• Official Safeguard Review consultation homepage
• World Bank Press release on First Draft
• U.S. Government Comments on World Bank Safeguards Review

The massive $16-billion mortgage fraud settlement agreement just reached by Bank of America and federal authorities — only the latest in a string of such settlements — makes it easy to lose sight of what good shape banks are in.

Banks are now far better capitalized, with tighter credit processes and better risk accounting. The bigger Wall Street houses have also jettisoned many of their most volatile trading operations. Yet most have still managed to turn in decent earnings. That is a tribute to the steady and generally thoughtful imposition of the new Dodd-Frank and Basel III regulations, the rules on “stress-testing” balance sheets and the controversial Volcker Rule that limits speculative proprietary trading operations.

And the feds are keeping on the pressure, as demonstrated by their rejection of almost all the “living will” plans submitted by the major banks, which are supposed to prevent the kind of disorderly collapse that Lehman Brothers went through in 2008.  These living will impositions are designed either to reduce the riskiness of bank holdings or to make the financial institutions post more capital and reserves to cushion against reverses.

While these reforms were badly needed after the virtual wholesale deregulation of the 1990s, they almost all raise costs and limit flexibility. But that is far from the worst problem facing the banks. The regulatory impact on revenues and profits is likely to be dwarfed by the pain banks will experience after the inevitable removal of their current federal life-support systems.

The Federal Reserve has taken extraordinary measures to entice banks to lend money. It has used two main tools. The first, called quantitative easing or “QE,” has entailed the Fed buying massive quantities of securities normally held by private financial institutions. The second has been to keep the fed funds rate, or the rate at which major banks lend their short-term funds to each other, at unusually low levels.

The Fed’s use of these tools has been extremely aggressive. Take quantitative easing. The Fed is a bank and has a balance sheet. At the end of 2007, or just before the financial crash, the value of its securities portfolio totaled about $925 billion; because of QE, the Fed’s balance sheet has ballooned to $4.4 trillion.  It’s safe stuff, mostly Treasuries and mortgage securities, but in normal markets, those volumes would be on the books of private institutions, not the Fed. In effect since 2008, the Fed has freed up about $3.5 trillion of new cash, nearly a fifth of annual U.S. gross domestic product, that the financial sector can recycle into the economy.

The Fed funds policy has been just as aggressive.  For context, during the high-growth years of the 1990s, the fed funds rate hovered at about 5.5 percent. After the 9/11 disaster and the 2001-2002 recession, then-Federal Reserve Chairman Alan Greenspan reduced the fed funds rate to 1 percent — the lowest since the 1950s.  He kept it there well after the economy had begun to recover. Then, together with his successor Ben Bernanke, Greenspan gradually moved it back to 5.25 percent by mid-2006. When the crash hit, Bernanke quickly pushed it back to 1 percent. In recent months, it’s been hovering at only a fraction of 1 percent.

How do such measures help the banks? Consider JPMorgan Chase. Last year, it had interest income of $53 billion against interest expense of only $9.7 billion, for a gross margin of 81 percent on its lending activities. In 2006, when fed funds were creeping back to 1990s levels, its gross interest margin was only 36 percent. If that same margin had applied in 2013, it would have cost JPMorgan $24 billion.

To put that number into perspective, that’s about a quarter of its annual gross revenues, and not much lower than the bank’s total compensation in 2013. So it’s fair to assume that without the Fed’s extraordinary measures, JPMorgan would be a far smaller bank.

Banks with more traditional business models, however, won’t be as exposed as a JPMorgan when the Fed’s abnormal assistance dries up. Wells Fargo, for example, is a big bank but without the investment banking and trading pretensions of a JPMorgan.  A greater share of Wells Fargo’s lending is funded from customer deposits, whereas JPMorgan is more reliant on the global money markets. That’s a big advantage for Wells Fargo, because when rates start rising, retail depositors react more slowly than the money markets do.

Wells Fargo’s 2013 gross interest margin was 91 percent, even better than JPMorgan’s. In the tighter environment of 2006, its gross interest margin was substantially better —  62 percent to JPMorgan’s 36 percent.

The Fed began to ratchet down its quantitative easing program earlier this year,  and its new chairman, Janet Yellen, recently announced that it will accelerate the phase-down. The stated intention, however, is to keep the fed funds rate at its current level for an unspecified period.

The extreme easy-money policy has been successful. It prevented a wholesale banking collapse in the wake of the crash and, to a somewhat lesser extent, managed to deliver measurable stimulus to the economy. Bernanke’s brave innovations deserve to be celebrated.

But as with any subsidy regime, the distortions being created may soon outweigh the good that’s been done. Since the Fed has been the major driver of the stimulus program, it has naturally used the financial sector as its primary tool, so much of the largesse has been diverted into financial-sector pockets. Disgracefully, in 2009, when the real economy was staggering, earnings and bonuses at most of the biggest banks broke records.

Cheap money also feeds asset bubbles — stock markets soar when margin rates are historically low. Keeping rates artificially low also punishes the diligent small savers with conservative retirement portfolios.

There will undoubtedly be hiccups as the stimuli are wound down. Indeed, some further stimulus may be needed. But the right course will be to put it directly into the real economy — including badly needed infrastructure repairs — where it will do more good rather than continuing to subsidize the financial-sector shareholders and executives.

PHOTO (TOP): From left to right, Lloyd Blankfein, chief executive of Goldman Sachs Group, Jamie Dimon, chief executive of JPMorgan Chase, John Mack, chairman of Morgan Stanley, and Brian Moynihan, chief executive of Bank of America are sworn in before their testimony at the Financial Crisis Inquiry Commission and its first public hearing in Washington, January 13, 2010. REUTERS/Jason Reed

PHOTO (INSERT 1): A Bank of America sign is shown on a building in downtown Los Angeles, California, January 15, 2014. REUTERS/Mike Blake

PHOTO (INSERT 2): Federal Reserve Chairman Ben Bernanke testifies before the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, July 22, 2009. REUTERS/Kevin Lamarque

PHOTO (INSERT 3): Federal Reserve Chair Janet Yellen testifies before the House Financial Services Committee on Capitol Hill in Washington, July 16, 2014. REUTERS/Kevin Lamarque

post more capital and reserves to cushion reverses