Russia's Central Bank Will Block Websites Using Cryptocurrencies

President Vladimir Putin said on Tuesday crypto-currencies were risky and used for crime, as Russia’s central bank said it would block websites selling bitcoin and its rivals - a change of tone from a month-old promise to legalize the market.

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RSCoin: The Bank of England's Cryptocurrency

The Bank of England is working with researchers at University College London to design a Bitcoin clone of its own that can be centrally controlled.

A recent MIT Technology report claimed that the UK’s central bank had reached out to university researchers to help it create a cryptographically secure digital currency. The resulting system has now been revealed, and is named RSCoin.

The RSCoin system, developed by Sarah Meiklejohn and George Danezis, employs cryptography to obviate counterfeiting and tampering. Unlike other mechanisms, the digital ledger used by the new cryptocurrency is handled exclusively by a central body. The report explained that RSCoin will only be made accessible to central bank users in possession of a specific encryption key.

Meiklejohn added that eventually third-party institutions (i.e. commercial banks) would be selected by the central bank to join the ledger. She detailed that these collectives would help the central bank process new transactions and submit them for inclusion in the central bank-owned ledger. The developer also noted that RSCoin differs notably from Bitcoin due to its centralised design and ability to handle huge volumes of transactions.

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China Busts $64 Billion Shadow Banking Network

Authorities in China have cracked the country's biggest-ever underground banking network, which handled illegal foreign exchange transactions worth 410 billion yuan ($64 billion), police said Friday.

The bust comes amid a monthslong crackdown on illicit outflows, which officials say disrupt China's financial management, facilitate corruption and help terrorists and criminals launder their dirty money.

Over 370 people were detained, prosecuted or otherwise reprimanded in the case, police in Jinhua city said in a statement on their website. Jinhua is in Zhejiang province on China's eastern coast, a zone known for its shadowy financial networks.

Police said one leader of the Zhejiang network was a man named Zhao Mouyi, who transferred over 100 billion yuan overseas using 850 different bank accounts and a dozen Hong Kong front companies. It took police nearly a year to sort through over 1.3 million suspicious transactions, they said.

Since April, Chinese authorities have uncovered over 170 big cases of underground banking and money laundering worth over 800 billion yuan ($126 billion), the state-run People's Daily reported.

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China's Central Bank cut Interest Rates to Small Business From 5.5% to 3.25%

China's central bank has cut interest rates charged by lenders that finance small businesses in a new move to shore up lackluster economic growth.

The People's Bank of China on Thursday cut the raid charged for a one-week loan by smaller lenders from 5.5 percent to 3.25 percent. The rate for an overnight loan was cut from 4.5 percent to 2.75 percent.

Beijing has cut interest rates six times since last November as economic growth slowed. But those cuts applied to large banks that lend mostly to state industry, not entrepreneurs who generate most of China's new jobs and wealth.

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9 of the World's biggest Banks Creating Framework for Bitcoin Blockchain Technology in Markets

Nine of the world's biggest banks including Goldman Sachs and Barclays have joined forces with New York-based financial tech firm R3 to create a framework for using blockchain technology in the markets, the firm said on Tuesday.

It is the first time banks have come together to work on a shared way in which the technology that underpins bitcoin - a controversial, web-based "crytocurrency" - can be used in finance.

Over the past year, interest in blockchain technology has grown rapidly. It has already attracted significant investment from many major banks, which reckon it could save them money by making their operations faster, more efficient and more transparent.

The new project, the result of more than a year's worth of consultations between R3, the banks and other members of the financial industry, will be led by R3 CEO David Rutter, formerly CEO of electronic trading at ICAP Electronic Trading, one of the world's largest interdealer brokers.

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Royal Bank of Scotland, Other Banks to Relocate to London if Little Scotlanders Win

Scotland's leading banks warned Thursday that they would move their headquarters to England if Scots vote to leave the United Kingdom, intensifying doubts about the territory's economic future and dealing a blow to the Scottish independence campaign just days ahead of a historic referendum.

Although the banks say the contingency plans are legal procedures that would have a minimal effect on their operations and jobs in Scotland, the warnings renewed concerns about an independent Scotland's ability to retain businesses — particularly during the long months of financial uncertainty that would follow a vote to break the 307-year union with England.

The Royal Bank of Scotland, which has been based there since 1727, said it drew up the plans because of uncertainties that could hurt its business and customers if the Sept. 18 vote leads to independence. Lloyds Banking Group, which owns Halifax and Bank of Scotland, said it also had plans to set up new "legal entities" in England if the independence campaign succeeds.

The vote "could have a bearing on the bank's credit ratings and the fiscal, monetary, legal and regulatory landscape to which it is subject," RBS said in a statement.

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China's Shadow Banks are Evolving

WILL rising defaults and stricter rules halt the breakneck growth of China’s shadow banks? When one of the country’s many trust companies, which sell high-yield investments, warned earlier this year of a looming default on one of its products, its clients reacted with anger and the wider market with alarm. As panic spread, regulators orchestrated a bail-out of the product, reassuringly named “Credit Equals Gold #1”. But in recent weeks investors in its sibling, “Credit Equals Gold #2”, have met a crueler fate. It is backed by loans to a bankrupt coal-mining firm which came due in July and have since gone unpaid. Investors will not get their money back until collateral can be seized and sold. That process may take more than a year. The episode, naturally, calls into question the widespread belief that such investments are safe because they are marketed by big, state-owned financial institutions.

Shadow banks, which barely existed before China’s credit surge in 2009, now have assets of at least 30 trillion yuan ($4.9 trillion), or more than 50% of GDP, according to estimates by ANZ, a bank. The government’s attempts to slow the pell-mell growth in credit extended by conventional banks have only steered more business to their shadowy cousins. In fact, investments from mainstream banks have been the shadow banks’ biggest source of funds. So the government has promulgated new regulations that make it harder for conventional lenders to do business with the duskier sort.

Assets managed by trust companies, the most common form of shadow bank, have surged fivefold since the start of 2010 to 12.5 trillion yuan. But growth in the second quarter was tepid and June marked the first monthly decline. The stock of bank-acceptance drafts—another popular form of shadow finance—is also falling. Perhaps as a result, fears that the problems at shadow banks will hobble the economy seem to have faded. At any rate, the default of Credit Equals Gold #2 barely made a ripple in markets.

Yet it is far too soon to call time on China’s shadow banks.

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Why There Ought to be a Bitcoin Central Bank

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

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European Banking Authority Warns Against Bitcoin Investment

The European Banking Authority (EBA) has weighed in on the use of virtual currency, and recommends that Bitcoin be avoided until regulatory systems are put into place.

A document prepared by the EBA for address to the European Commission and European Parliament sets out the regulatory body's opinion (.PDF) on virtual currency — such as Bitcoin, Litecoin and Peercoin — and warns financial institutions to keep their distance until the industry is regulated.

The EBA is responsible for monitoring new and existing financial activities in the European region, with a view to promote the safety of financial markets and issue guidelines and recommendations to keep business flowing. The EBA did not take an interest in virtual currency until September last year, and issued a warning in December outlining the risks of investing in Bitcoin.

The EU financial and banking watchdog says that a "thorough assessment" of virtual currency (VC) needs to be undertaken, and the main question is whether cryptocurrency can, or should, be regulated.

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European Central Bank About to Charge Banks to Deposit Money?

The European Central Bank could be going negative soon.

Among the more unusual steps the central bank is considering this week to boost the eurozone's recovery is cutting to below zero the interest rate it pays on money that banks deposit with it. That effectively means banks would have to pay to park money with the ECB — an unorthodox move that has had some success in neighboring Denmark but hasn't been attempted in the much larger eurozone.

The goal: Push banks to lend that money to companies and consumers to get the economy moving.

The ECB, the eurozone's chief monetary authority, has been resisting such a step, which it considered as long ago as summer 2012 but which President Mario Draghi dismissed then as "largely uncharted waters."

But things are now bad enough that many analysts think Draghi and the 23 other members of the ECB's governing council will try the step Thursday and cut the deposit rate from its current record low of zero, perhaps with a rate of minus 0.1 percent. The ECB is also expected to trim its main interest rate, at which it lends to banks, from 0.25 percent to as low as 0.1 percent.

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Battling Shadow Banking in China

IN THE town of Jingjiang, a few hours’ drive from Shanghai, Yangzijiang Shipbuilding is making 21 huge container ships for Seaspan, a Canadian shipping firm. An enormous sign declares, “We want to be the best shipyard in China.” It is certainly among the most profitable, earning 3 billion yuan ($481m) last year. But only two-thirds or so of that came from building ships. The rest came from lending money to other companies using a local financial instrument called an entrusted loan. This puts Yangzijiang at the forefront of another industry: shadow banking.

A decade ago, conventional banks, which are almost all state-owned and tightly regulated, accounted for virtually all lending in China. Now, credit is available from a range of alternative financiers, such as trusts, leasing companies, credit-guarantee outfits and money-market funds, which are known collectively as shadow banks. Although many of these lenders are perfectly respectable, others constitute blatant attempts to get around the many rules about how much banks can lend to which companies at what rates.

Although bank lending remains far bigger than the shadowy sort and is still expanding at an astonishing pace, its rate of growth has recently stabilised. The growth of some of the more worrying forms of shadow lending, in contrast, is accelerating (see chart). Shadow banks accounted for almost a third of the rise in lending last year, swelling by over 50% in the process.

Thus far, most of the concerns about shadow banking in China have centred on trusts. By offering returns as high as 10%, they raise money from businesses and individuals frustrated by the low cap the government imposes for interest rates on bank deposits. The interest they charge to borrowers, naturally, is even higher. They lend to firms that are unable to borrow from banks, often because they are in frothy industries, such as property or steel, where regulators see signs of overinvestment and so have instructed banks to curb lending. Over two-fifths of Yangzijiang’s loans go to property developers in smaller Chinese cities; land makes up nearly two-thirds of its collateral.

China’s economy is slowing. It has grown by 7.6% for the past two years, the slowest rate since 1990. Several trust products have defaulted, although investors in most of them have got their money back one way or another. Over $400 billion-worth of trust products are due to mature this year—and borrowers will want to roll over many of those loans. Many observers worry that investors will lose faith in trusts, prompting a run, which may, in turn, blight certain industries and other parts of the financial system. No country, pessimists point out, has seen credit in all its forms grow as quickly as China has of late without suffering a financial crisis.

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US Banks Reducing Presence in Russia

US banks have for the first time detailed how far they have retrenched from Russia in response to the escalating crisis in Ukraine.

After the US imposed extra sanctions on Russian individuals and institutions in response to its seizure of the Crimean peninsula from Ukraine, Citigroup said in a filing that its exposure to Russia fell 9 per cent to $9.4bn in the first three months of the year – its fiscal third quarter.

JPMorgan Chase said it cut its exposure to Russia by 13 per cent to $4.7bn in the same period, while Bank of America Merrill Lynch cut its exposure to the country by 22 per cent $5.2bn.

The US and Germany warned on Friday that they would impose further sanctions on important sections of Russian industry if Moscow impeded the presidential elections in Ukraine this month.

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Should the United States Postal Service Add (back) Financial Services?

WITH a workforce of just over 491,000 in 2013, the United States Postal Service (USPS) is second only to Walmart among civilian employers in America. But it still employed more than 200,000 fewer people last year than it did just nine years earlier—when it handled nearly 500m more pieces of mail and had almost 2,000 more retail offices. The rise of e-mail has left America’s massive postal service with far less to do, and it has been scrambling to find ways to raise revenue.

Earlier this year its inspector-general released a white paper suggesting that post offices should begin offering financial services, such as cheque-cashing, small loans, bill payments, international money transfers and prepaid cards to which salaries or benefits could be transferred. The reasoning is simple: a lot of Americans have scant access to banks and a lot of post offices have too little to do.

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Bitcoin Vaue Falls on Bank of China Ban

Bitcoin rose above $500 on the CoinDesk bitcoin price index Friday, after plunging more than 17% Thursday to $478.16. In recent trade, bitcoin exchanged hands at $503.01 on the index, which tracks prices on three exchanges. Thursday's drop came after the Chinese media reported that the People's Bank of China had ordered banks to close accounts of several virtual-currency exchanges, effective April 15.

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Chinese Bank Reform

“OUR banks earn profit too easily. Why? Because a small number of large banks have a monopoly.” So declared Wen Jiabao, China’s former prime minister, two years ago. He went on to say that the only solution was to allow more private capital in banking.

That seemed unlikely to happen soon, given the firm grip the government has had on banks in the country. The industry is tightly regulated, with deposit interest rates controlled by the authorities and all bank savings enjoying the implicit backing of the state. The biggest Chinese banks, which also happen to be the largest in the world, are all state-run.

Undaunted, the newish government of President Xi Jinping vowed to push ahead with financial liberalisation. This week it did just that. On March 11th regulators approved a pilot scheme to allow five privately owned banks to be set up in various parts of the country. The new banks will be regulated much as existing lenders are, but will be required to have clear provisions for orderly dismantlement in case of bankruptcy.

By welcoming more private capital, officials are hoping to inject competition and innovation into China’s sclerotic banking sector. The aim is for these new banks to target small and medium-sized enterprises, long starved of capital by the state-run banks (keener to lend to state-owned enterprises). Two giant Chinese internet firms, Tencent and Alibaba, are among the chosen investors. That suggests the authorities are taking a favourable view of the forays the two firms have made into internet finance.

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Falciani Has Been Doing a Snowden on Tax Evaders Hiding in the Bank HSBC

WHAT Edward Snowden is to mass surveillance, Hervé Falciani is becoming to private banking. In 2008 the now 41-year-old native of Monaco walked out of the Geneva branch of HSBC, where he had worked for three years, clutching five CD-ROMs containing data on thousands of account holders. The theft lobbed a bomb into Europe’s private-banking market, spawning raids and tax-evasion investigations continentwide. In the latest, this week, Belgian agents swooped on the homes of 20 HSBC clients, including some with ties to Antwerp diamond dealers.

Mr Falciani went on the run when the Swiss charged him with data theft. After moving to Spain he was imprisoned, but freed when a judge denied a Swiss extradition request. At one point, he claims, he was kidnapped by Mossad agents who wanted a peek at the clients’ names. He has now taken refuge in France, where the government has offered him protection in return for helping it hunt for tax dodgers.

Several countries have used the data to bring cases against suspected evaders. Revelations that dozens of Greek public figures hid money offshore have magnified the tumult in that country’s politics. Spain and France have fingered hundreds of high-level cheats and retrieved €350m ($610m) in back taxes. Mr Falciani maintains that his CDs provided support for an American probe into weak money-laundering controls at HSBC, which led to a $1.9 billion settlement. HSBC disputes this.

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huh. Not heard of this before now, but head is in the science circles, not financial.

Whatever happened to the data that Assange et al claimed to have on the American banking sector? Just hot air?