Time for Action on America’s Darwinian Debt Struggle

Robin Wigglesworth, Financial Times Read the full article here

Since March, the Fed has unleashed a dizzying display of relief measures aimed at mitigating the economic impacts of the coronavirus pandemic. These actions have sparked a borrowing spree, with nearly $2 trillion in bonds sold already in 2020. Despite this, the cost of borrowing is at or near all-time lows, with bonds of even “junk” credit paying coupons on par with some of the world’s leading creditors. However, some have raised concerns about an inequity of credit access – for smaller companies, corporate loans are becoming more rare. A Fed survey of bank loan officers found that about 70% of those officers were tightening restrictions on loans. This trend has undercut and even undone the notion of smaller listed companies’ historical outperformance of the general market, a trend that has persisted for nearly a century. While several programs assisting small business exist and have lent significant amounts to small business (for instance, the Paycheck Protection Program made 5.2 million loans for a total of $525 billion between April and August), the increasing divide between the credit of large and small companies poses a significant concern for the overall health of the US economy.

China’s Biggest Banks Face $940 Billion Capital Shortage by 2024

Bloomberg
Read the full article here

The four largest lenders in China are facing huge funding gaps needed to meet global capital requirements. Such requirements are designed to protect the public and financial system from bank failures. Last year, the Industrial and Commerical Bank of China Ltd., Bank of China Ltd, China Construction Bank Corp, and Agricultural Bank of China Ltd. had a total shortage of 2.25 trillion yuan ($323 billion). Each of these four largest lenders are considered globally-systemically important banks. By 2024, this shortage could grow to as much as 6.51 trillion yuan especially as the pandemic erodes their earnings capacity. The big state-owned banks were among the hardest hit by the pandemic as the government called on them to save the economy, urging them to raise funds and strengthen capital buffers. Combined earnings for more than 1,000 commercial banks in China slumped more in the second quarter than they have in more than a decade. 

China’s Biggest Banks Face $940 Billion Capital Shortage by 2024

Bloomberg
Read the full article here

The four largest lenders in China are facing huge funding gaps needed to meet global capital requirements. Such requirements are designed to protect the public and financial system from bank failures. Last year, the Industrial and Commerical Bank of China Ltd., Bank of China Ltd, China Construction Bank Corp, and Agricultural Bank of China Ltd. had a total shortage of 2.25 trillion yuan ($323 billion). Each of these four largest lenders are considered globally-systemically important banks. By 2024, this shortage could grow to as much as 6.51 trillion yuan especially as the pandemic erodes their earnings capacity. The big state-owned banks were among the hardest hit by the pandemic as the government called on them to save the economy, urging them to raise funds and strengthen capital buffers. Combined earnings for more than 1,000 commercial banks in China slumped more in the second quarter than they have in more than a decade. 

Big Tech’s Domination of Business Reaches New Heights

Peter Eavis and Steve Lohr, New York Times
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A rally in technology stocks has driven significant gains for the S&P 500 index as Apple, Amazon, Alphabet, Microsoft, and Facebook continue to solidify their influence over the market. With 23% of the total market’s value consolidated in these 5 companies, their growth of 37% has allowed the S&P to reach record highs while every other stock in the index fell by a consolidated total of 6%. The coronavirus pandemic has certainly contributed to this – these companies own the four most visited websites in the country, and traffic to these sites increased as much as 15% in March during the lockdown orders and largely holding steady since then. This market dominance has raised concerns over potentially anticompetitive behavior, notably a recent antitrust hearing. Economic historians have pointed out that the pre-eminence of these technology stocks goes beyond most prior market concentrations. In 1929, Sears and A&P’s control of 3% of retail sales sparked additional antitrust legislation. Today, Walmart and Amazon account for 15% of retail sales. With Amazon, Google, and Microsoft spending $10-$15 billion per year on R&D for cloud computing technology, few companies have the capital resources to compete. The companies have argued that their advanced positions allow them to deliver better experiences and lower prices to consumers. While the recent success of Zoom and TikTok has indicated that there is still room for disruption, the markets believe that these five companies will continue to deliver significant value for years to come.