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Mervyn King, Governor of the Bank of England, wants to see stricter requirements than Basel III on capital reserves for U.K. banks. The Bank of England has expressed its strong disapproval of UK banks lobbying activities in Brussels to push for a dilution in Basel III standards. The British government and the Bank of England want to have the flexibility to set their own stricter standards and not to be bound by a relaxed standard set by the EU. The risk to British taxpayers is a principal concern. In the U.S. Fed governor Daniel Tarullo is pushing for capital reserve requirements stricter than Basel III's 7% requirement- calling for a requirement of 10-14%.

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There is strong cirticism from many quarters about low interest rates as a prime culprit in causing the bubble in housing prices. In comments before the American Economic Association, America's Fed Chairman Bernanke defended his role as Fed governor in 2003 when he along with Greenspan was an advocate of the decision to cut the Fed's target interest rate to 1%, and to leave it here for a year and raise it only slowly. Bernanke says countries like Britain, New Zealand, and Sweden had tighter monetary policy but there home prices rose more, and monetary policy explains only 5% of the variation in home prices. Analysis has shown he says that capital inflows such as those the U.S. received from China and other Asian countries explains 31% of the variation in home prices, supporting a contrasting theory that that its these global imbalances that drove the crisis. He also placed the primary fault for the housing bubble on relaxed lending standards and views that housing prices would rise forever. Alongside these comments Fed chairman Bernanke also said that bank supervisors and other financial regulators of which the Fed was one, has a better ability to contain the excesses that led to the economic crisis including housing bubble and other excesses, than the Fed as a monetary policy maker. By saying this Bernanke is acknowledging that the failure of regulation was a key part of what happened in the economic crisis. The failure to fix the regulatory system even now leads Bernanke to say that he is open to using monetary policy as a supplementary tool for addressing risks should another bubble develop, if the regulatory system isn't reformed. Still Bernanke and Greenspan were quite complacent at the time of the low interest rates and did not point out the dangers of global capital imbalances which were evident at the time, preferring to say that the United States could benefit from the inflows of capital from overseas without serious risks. And the Fed did not exercize its role of vigilance in alerting the country to excesses in the way the housing industry operated and in exercizing its own powers to that effect. Instead the Fed as regulator and in role as asafeguard for serious risks let itself become part of the cheering section as the worst excesses in housing were being exposed....

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Difficulties facing Britain which depends on continental Europe for exports and would be affected by whatever happens in Europe, and yet is reduced to being on the sidelines. This comes at a difficult time for the Cameron government, which is a coalition of Conservative party members who are euroskeptics, and the Liberal party members who are the most europhile of the the three major British parties. Sarkozy and Merkel have made clear that they would move ahead with a closer fiscal union within the eurozone, no matter what Britain's views are. This leaves David Cameron's government to what Labor leader, Ed Miliband, called "handwringing," as Britain can do little about the future direction of the EU. Cameron is able to please backbenchers in parliament from his party with talk about protecting British interests, but has no neotiating leverage, according to Steven Fielding, director of the Center for British Politics at the University of Nottingham. Britain may also have antagonized European leaders. Sarkozy said about Cameron and British government views: "You say you hate the euro and now you want to interfere with our meetings." This also happens as Britain faces rising unemployment, and deficits larger than anticipated after austerity measures taken by the Cameron government....

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Lessons from the Mexican financial crisis of 1994-95 with the collapse of the Mexican peso, and a massive government bank bailout and Mexico's biggest slump since the Great Depression. Guillermo Ortiz, now central bank governor, was finance minister at the time. He discussed things with Fed Reserve chairman Ben Bernanke, about the Mexican experience which could be seen as the first financial crisis of the global economy. What lessons can be learned? Ortiz says there comes a moment when something happens that leads to a general loss of confidence. Once this happens things can deteriorate fast. This happened when Mexico could not successfully manage the devaluing of the peso. For the USA this might have happened with the collapse of Lehman, which may have triggered a sequence of events leading to a general loss of confidence and banks fear of lending to each other and credit markets getting frozen. At that point Ortiz says its better to do too much than to do too little, as it takes a lot to restore confidence. "And don't be ruled by ideology, stay flexible and act decisively. Help those with mortgages they can't pay. Take stakes in troubled banks. Don't expect to turn a profit on government investment." How do you tackle mortgage workouts or modification. Vicente Corta who led Mexico's bank bailout program says "we tried fancy scemes that did not work. We ended up saying 'OK you pay half your mortgage, and we'll pick up the other half." Sounds similiar to what FDIC's Sheila Barr is doing on a small scale at IndyMac bank, basically " making mortgages affordable." And take stake of ownership in banks in exchange for injection of capital. Paul Krugman says the Bush administration earlier was reluctant to do this, thinking oh that is socialism, because they let themselves get into an ideological bind. Until Gordon Brown did just this in the UK with RBS and HBOS banks on Monday October 13, 2008. In that case because no on else came forward Britain took a majority stake. British finance Minister, Alistair Darling, stated that the British government was not in the business of running banks and that this was taking a necessary step to restore lending. The Mexican experince in this context is very instructive. It cost Mexico dearly in terms of political warfare about this, because once Banamex for example- to which the Mexican governmet gave money without any ownership stake- became healthy it was sold to Citigroup for $12 billion and the government got nothing. In Mexico Lopez Obrador and other politicians have created a running debate about this as totally unfair and it has been divisive for Mexican politics, making passing even basic legislation difficult. Ortiz now says take ownership stakes and if you don't forget about socialism you will have political fallout of a different kind when banks once healthy and profitable are on their own owing little to the government; just when the government falls short of financing the basic programs for the elderly, for children, for schools, for health care,and for collapsing bridges and roads that are falling apart, not to speak of funding shortfalls for Medicare and Social Security. So Guillermo Ortiz has some very useful advice for Ben Bernanke and the Fed and for Treasury and for the next President. Edmund Phelps of Columbia University was interviewed on Bloomberg today, October 13. He is a recent winner of the Nobel prize in Economics. He also believes capital injection into the banks- like other economist have suggested -is the key to getting the banks to lend. He thinks the auction process and buying up toxic assets is way too complicated and would take way too much time. He thinks keeping homeowners in their homes and reducing foreclosures is critical and thinks Martin Feldstein has some good ideas on this. See the links to Martin Feldstein. What if things still deteriorate? The government may have to nationalize or takeover some of the banks, he says. Gordon Brown has already taken over RBS and HBOS. What are some of the ways to improve things. One is that credit ratings firms he says have become almost oracular. Do they know what can happen in the future he asks. We have to rethink what it means to give a rating he says. And the U.S. financial institutions have to go back to doing what they should be doing in the first place, which is to finance investments in companies and business, and not homes and residential construction. ...

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Even as huge losses continued at RBS bank bonuses remained high. After $15 billion in losses at RBS in 2013, banker bonuses were $960 million for the year. Banker bonuses declined from 679 million pounds in 2012 to 576 billion pounds in 2013. New CEO Ross McEwan, says "I need to keep people engaged." He announced another reorganization. He says RBS "is the least trusted company in the least trusted sector of the economy." This follows public criticism of RBS for not lending enough to small business and unfair treatment of customers. The new plan is for cost cuts to save 2.2 billion pounds by closing 16 corporate call centers and 11 offices in London. Sales and restructuring cuts are planned for 3.1 billion pounds in savings.

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Adam Davidson of the NYT's interview with American economist Posen, a member of the Monetary Policy Committee of the Bank of England. Posen says austerity measures have a negative effect on the British economy with high unemployment and lack of economic growth.

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Views of students and former Chief Secretary Anson Chan are expressed in this piece by Wan on the protests for more democracy in Hong Kong. Chan says if he had known what Hong Kong would be like today he would not have been so enthusisastic about the handover to China in 1997. He is one of the leaders pushing for a compromise.

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The Economist magazine says China needs to find a way for Chinese citizens to participate in governance without risking the kinds of upheavals that have happened in the past, including Tiananmen. One way to do this is to see Hong Kong more as opportunity than threat, and allow an experiment to happen in a place ideally suited for this with its long traditions of free expression. Jinping is faced with a chance to do his country a great service.

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The high cost of fines is likely to affect recapitalization of UK banks. Fines for Libor-rigging and compensations for customers on Payment Protection Insurance may cost the UK banking industry about 20 billion pounds, says Nixon. Other fines such as the $1.9 billion fine for money laundering activities of HSBC have to be added to this. This means less money for meeting stronger capital requirements and for lending to business and households. Higher compliance costs will mean higher costs in future years. HSBC estimates of the anti money laundering systems are about $990 million a year. The Bank of England has raised concerns about the need for additional capital to safeguard British banks.

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The British government's sale of 7.5% of the shares in Lloyd's Bank to institutional investors in March 2014 for $7 billion. This reduces its stake in Lloyds bank to 25%.

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Dilution of the Volcker Rule by defining "hedging" as covering bank risk on a "portfolio basis," "including aggregate risk of one or more trading desks." The new wording is in a 174 page draft proposal for the rule released by regulatory agencies. The Federal Reserve, the FDIC, the CFTC, the SEC, and the Treasury Department are putting together the final wording. This opens the door for banks to engage in proprietary trading on their own account. Experts say this makes it possible for financial firms to make all kinds of bets on the market, by defining the risk of its portfolio broadly, such as a U.S. recession. Additional changes are the deleting of the requirement that chief executives pledge their firms are not engaging in proprietary trading. Another change that is being debated is whether to require banks to report all trading to a single repository so that regulators can see if there is systemic risk. The result of this would be a watering down of the original Volcker Rule provision in the Dodd-Frank legislation, that banned proprietary trading after the 2008 financial collapse on Wall Street....

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Britain's Treasury chief Osborne faces a difficult period as the economy shows flat growth for 2012 and 2013. The targets he set for eliminating the structural deficit or budget gap by April 2017 may need to be shifted to 2018. The target for net debt to decline as a percentage of GDP by 2015 may also be unachievable if growth is flat in the coming year. An accounting change in how profit from the Bank of England's bond buying program are shown is designed to reduce Treasury's borrowing and bring Britain closer to this target. Osborne says Britain's actions for austerity measures, spending cuts and increasing taxes have helped keep interest rates low to pay off debt.

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Ring-fencing the retail operations of UK banks from possible losses in the investment banking activities was part of proposals by the Independent Commission on Banking in the UK. Now a parliamentary commission calls for periodic reviews of such ring-fences to ensure this separation is actually still in place, and not been diluted or otherwise removed by bending the rules to favor banks because of lobbying by the banks. It says "over time the ring-fence will be tested and challenged by the banks. Politicians too could succumb to lobbying from banks and others, adding to pressures to put holes in the ring-fence." The report emphasized that a lot more needs to be done to restore standards in banking, especially after recent reports of LIBOR and other revelations of market rigging and corruption. The emphasis in the report is for banks "to be discouraged from gaming the rules."

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Forsythe describes the process by which the Chief Executive is elected in Hong Kong from a group of 1200 individuals mostly pro-business and loyal to Beijing. This was done under the Basic Law drafted in 1990, a mini-constitution that was the basis of transfer from Britain to China in 1997. In 2007 China's People's Congress promised Hong Kong a "one man, one vote" election for 2017. On August 31, 2014 changes were made to this planned election process to limit candidates to persons approved by Beijing, that was considered unacceptable by the protestors from civil society and the universities.

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When George Osborne took over at the British Treasury the deficit was 10.2% of GDP. Osborne's hope in 2010 was that the budget could be balanced by 2015, now it looks like this will happen in 2019 or later.The forecast for the end of the 2015 fiscal year is a deficit of 5% of GDP. Lower than expected tax receipts are a big reason for the difficulty in lowering the deficit. The Office for Budget Responsibility, the budget agency, has reduced the forecast for tax receipts for 2015-2019 by 87 billion pounds. This means further spending cuts will be needed, according to OBR. Budget surplus is not expected before 2019. This is happening even though lower inflation and lower market interest rates have helped reduce outlays to service the debt. OBR assumes productivity will increase to 2% for the budget to be balanced in 2019. At the average productivity growth rate of 0.5% seen since 2008, the budget deficit will still be 2.2% in 2019, in another scenario of numbers run by OBR.