Commercial Banking

A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits.[1] After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S. law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. In some other jurisdictions, the strict separation of investment and commercial banking never applied. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services.

Japan Moves Closer to Intervention

Despite backed by negative real interest rates, the Japanese Yen continues to grind upwards, threatening to break through significant psychological and technical barriers. From a monetary standpoint, the Bank of Japan is basically out of options with regard to limiting the currency's upward momentum. Its sole remaining tool is its $1 Trillion in foreign exchange reserves, which it could release directly into currency markets to depress the Yen. It has been four years since Japan last employed such a strategy, and it appears reluctant to dip into the reserves again for fear of offending the G8, which has discouraged such action. The BOJ is also reluctant to build its holdings of US Treasuries (which would be a collateral requirement of holding down the Yen), because bond prices have become inflated. However, loss of face may soon become the least of its concerns, as the economy slides deeper into recession. Unless the notoriously thrifty Japanese consumers can be impelled to action, the Bank may find it has no other choice but to spur the export sector via a cheaper Yen. The Guardian UK reports:
The economic malaise in the United States and Europe is affecting Japan and Tokyo must act to keep the economy afloat, Nakagawa said, a day after the country's central bank forecast that Japan would plunge into its deepest contraction in modern times.

US Treasury Spurns China

During his confirmation hearings, Treasury Secretary Geithner indicated that the Obama administration consensus is that China is manipulating the Yuan. China predictably refuted the charges, and indicated that it will not be bullied into submission by the US when managing its currency. Thus began a heated back-and-forth between US and Chinese economic officials, with the forex markets caught awkwardly in the middle. Geithner apparently doesn't realize that his position also carries important diplomatic responsibilities, namely helping the US government to pay its bills by ensuring a steady demand for US Treasury securities abroad. Offending the most reliable foreign lender, accordingly, is probably not the best strategy to fulfilling this role. Moreover, Geithner's testimony couldn't have occurred at a worse time, given the planned expansion of US debt and the simultaneous leveling off of China's forex reserves. The implications for the Dollar couldn't be clearer. Forbes reports:
China has been a major purchaser of America's official debt in recent years. If it were to stop...Geithner would likely find his Treasury paper having to offer higher yields to draw investors, putting new pressure on the American budget.

Swiss Franc in Spotlight

The Swiss Franc is in the same boat as the US Dollar and Japanese Yen, benefiting from an increase in risk aversion and an unwinding of carry trade positions. In other words, the currency rising on the back of the sound monetary policy of the National Bank of Switzerland, with its low rate of inflation and proportionately low interest rate. Despite the fact that the Swiss economy is poised to contract in 2009, its economy is in better shape than its rivals, and its current account balance is still in surplus. As a result, the consensus among analysts is that investors will continue to flock to the Franc, as Switzerland is sill perceived as a relatively low-risk place to invest. Especially compared to the Euro, which has risen against the Dollar of late, the Swiss Franc remains undervalued. Bloomberg News reports:
Investors are drawn to the franc in times of international tension and economic upheaval because of the country’s history of neutrality and political stability.

EU Periphery Laments Euro Membership

Only last year, Greece, Ireland, Italy, Portugal and Spain were collectively the pride of the EU, boasting strong growth characteristics and buoyant capital markets. In hindsight, this was but a mirage, as the stability of Euro-membership allowed such "peripheral" economies to embark on a colossal building boom and spending spree that was ultimately baseless. Greece, which is perhaps in the worst shape of the lot, witnessed its twin deficits (government debt and trade) rise to dangerous levels; given its membership in the EU, it is unable to resort to currency depreciation to rectify the problem.
The illusion has since been shattered, and it seems investors are trying to overcompensate for their previous naivete. Yields on government bonds for all five countries have begun to creep up, and a handful of speculators are betting on the possibility of default. Most experts insist that such a scenario is unlikely, but at the very least, the credit crisis has exposed the chinks in the armor of the EU, demonstrating that the currency also has its drawbacks. The New York Times reports:
While sharing a currency with some of the mightiest economies in the world helped Europe's poorer nations share in the wealth, a boon during boom times, in hard times the rules of membership are keeping them from doing what countries normally do to ride out economic storms, including enormous spending.