March 20th Financial News

Daily News

Summary:

UBS buys Credit Suisse for 3 billion Swiss francs; Global central banks to boost liquidity through dollar swap agreements; OECD raises global growth outlook...

【Quick Facts】

1. UBS agreed to buy Credit Suisse for 3 billion Swiss francs.

2. Global central banks will boost liquidity in US dollar swap agreements.

3. Nearly 200 U.S. banks face the risk of collapse.

4. U.S. March consumer sentiment fell for the first time in four months.

5. OECD raises global growth outlook.

6. The probability of the Fed raising interest rates by 25 bps in March is 65.7%.

【News Details】

1. UBS agreed to buy Credit Suisse for 3 billion Swiss francs.

Under the mediation of the Swiss government, UBS is buying Credit Suisse at a 40% discount on shares for a consideration of 3 billion Swiss francs and taking a loss of $5.4 billion; creditors holding $17 billion worth of Credit Suisse AT1 bonds will be left out of pocket. The Swiss central bank provided 100 billion Swiss francs of liquidity to the merged Credit Suisse, which was welcomed by the U.S. Treasury and the Federal Reserve, which emphasized the strong and resilient liquidity of the U.S. banking sector.

2. Global central banks will boost liquidity in US dollar swap agreements.

In a statement coordinated with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss Central Bank, the Fed said that in order to improve the effectiveness of the US dollar swap lines in providing US dollar liquidity, the central banks participating in the US dollar swaps will "increase the frequency of 7-day maturity operations from weekly to daily", with daily operations starting on March 20 The daily operations will begin on Monday, March 20, and will continue until at least the end of April. The central banks said the increased swaps would " boost liquidity provision" and described the arrangements as "an important liquidity backstop to ease pressure on global funding markets" and would also mitigate the impact on the availability of loans to households and businesses.

3. Nearly 200 U.S. banks face the risk of collapse.

According to U.S. media reports, a research report shows that a total of 186 U.S. banks have similar risks to Silicon Valley Bank, even if only half of their depositors suddenly withdrew their funds, the U.S. Federal Deposit Insurance Corporation (FDIC) will be difficult to come up with enough money, and then 300 billion U.S. dollars to obtain federal savings insurance deposits at risk. The report also revealed that the "Midsize Banks Coalition of America", which represents medium-sized banks in the United States, has called on the FDIC to provide deposit insurance for all deposits within the next two years, saying that such a measure "would immediately stop the outflow of deposits from small banks ", promote banking stability and restore confidence.

4. U.S. March consumer sentiment fell for the first time in four months.

U.S. consumer sentiment fell for the first time in four months in March, but households expected inflation to subside over the next year and beyond, which could offer some relief to the Federal Reserve as it confronts financial market instability. The University of Michigan's preliminary March consumer confidence index came in at 63.4, compared with an estimate of 67.0 and 67 for the previous month. One-year inflation expectations in the survey fell to 3.8% from 4.1% in February, the lowest since April 2021.

5. OECD raises global growth outlook.

The Organization for Economic Cooperation and Development (OECD) said the global economic outlook has improved from a few months ago as inflationary shocks ease, but rising interest rates will keep risks high. The OECD raised its growth forecasts for major economies. In its economic outlook, the OECD said the global economy is expected to grow 2.6 percent this year after growing 3.2 percent last year, higher than the 2.2 percent it expected last November, as energy and food prices fell and China eased restrictions on Covid-19.

6. The probability of the Fed raising interest rates by 25 bps in March is 65.7%.

According to CME "Fed Watch": The probability of the Fed keeping interest rates unchanged in March is 34.3%, and the probability of raising rates by 25 bps to the 4.75%-5.00% range is 65.7%; the probability of keeping rates unchanged by May is 26.1%, the probability of raising rates by 25 bps is 58.2%, and the probability of raising rates by 50 bps is 15.8%. The probability of 50 bps is 15.8%.

【Focus of the Day】

UTC+8 7:50 BOJ releases Summary of Opinions at March Monetary Policy Meeting Review

UTC+8 9:15 China one-year and five-year LPR as of March 20th

UTC+8 22:00 ECB President Lagarde delivers a speech

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Cohen

UBS Group emerged as Switzerland's one and only global bank with a state-backed rescue of its smaller peer Credit Suisse, a risky bet that makes the Swiss economy more dependent on a single lender.

The unprecedented move announced late on Sunday in Zurich capped a race against time by regulators to avert a meltdown in global markets. Switzerland is pledging more than 160 billion francs ($173 billion) in loans and guarantees to underpin the new group, guarding against further risks undermining the lender.

The transaction – the first rescue of a global bank since the financial crisis of 2008 – grants enormous clout to UBS, ridding it of its main rival. It will change the landscape of banking in Switzerland, where branches of Credit Suisse and UBS are dotted everywhere, sometimes just metres apart.

The two lenders have been pillars of global finance for decades. The banks, two of the most systemically relevant in global finance, hold combined assets of up to 140% of Swiss gross domestic product in a country heavily dependent on finance for its economy.

Following the 2008 financial crash, politicians pledged to never bail out banks again. The Credit Suisse rescue, orchestrated with public money, shows banks' continued vulnerability and how their problems can quickly rebound on their home country.

But it also removes a competitor to Wall Street, with UBS planning to pare back much of Credit Suisse's investment bank.

"Under normal circumstances, I would say it is an absolutely fantastic deal for UBS," said Johann Scholtz, equity analyst at Morningstar, covering European Banks, Amsterdam. "In the current environment, it is a bit more complicated as there is a lot of uncertainty generally in the markets."

Reversal of Fortunes

Soon after the announcement, central banks including the Federal Reserve, the European Central Bank and the Bank of Japan said they would enhance dollar swap lines, helping calm investors rattled by turmoil in the banking sector. The failure of two U.S. banks and a rout in Credit Suisse shares have sent shock waves through markets over the past week.

UBS will pay $3.2 billion for 167-year-old Credit Suisse and assume at least $5.4 billion in losses from unwinding its portfolio of derivatives and other risky assets. Credit Suisse had a market value of about $8 billion at the close on Friday.

Holders of Credit Suisse's Additional Tier 1 bonds will get wiped out and in a controversial move will come secondary to equity holders who will receive at least some UBS shares.

It marks a radical twist of fate for the banks. During the great financial crash, it was UBS and not Credit Suisse that needed state support.

The banks' fortunes have diverged sharply over the past year. UBS earned $7.6 billion in profit in 2022, while Credit Suisse lost $7.9 billion. Credit Suisse's shares were down 74% from a year ago, while UBS's are relatively flat.

UBS becomes the undisputed global leader in managing money for the wealthy, with UBS's leading position in China now complemented by Credit Suisse's strength in the rest of Asia, the fastest growing region. UBS also gets to keep the jewel in Credit Suisse's crown, the domestic bank.

"In the past, when a deal between Credit Suisse and UBS was discussed, a sticking point would be concentration, especially in the domestic market," said Morningstar's Scholtz. "It is also the most stable part of the business, that generates quite a lot of cash. If UBS is not required to do an IPO of it, it could make sense for them to keep it, there are lots of synergies."

UBS is also taking out a big competitor in securities trading. UBS earned $7.1 billion in revenue from buying and selling stocks, currencies and bonds. Credit Suisse posted about$3.2 billion last year.

Still Swiss

Credit Suisse's demise has been a blow to Switzerland's reputation for banking and sent shockwaves through global finance.

At a press conference announcing the deal, finance minister Karin Keller-Sutter defended the rescue, saying it was good for Credit Suisse account holders, including her. She said she also banked with UBS. That choice of banks will soon end.

"This solution has risks," she conceded, playing down any concerns about the size of the new bank, arguing that any alternative to resolve Credit Suisse's problems risked "irreparable economic turmoil."

Seated to her right, UBS Chair Colm Kelleher said the new group would be trimmed of risks, such as investment banking, to fit UBS's conservative culture.

"A new UBS will remain rock solid," he said.

Credit Suisse's Chair Axel Lehmann, in contrast, was downcast as his bank proved unable to bounce back from a series of scandals and losses. Late last year, speculation that the bank would go bust drove clients to pull tens of billions, sealing its fate.

He described Sunday as a "historic, sad day."

Employees at the headquarters in Zurich are bracing for massive job cuts, with 10,000 positions potentially on the line, sources told Reuters on Saturday.

Still, it won't be all plain sailing for UBS.

The bank faces risks to complete the deal, potential litigation charges while regulators may ask the lender to hold more capital in the future, said analysts at Jefferies.

Crucially, management will be distracted by this deal for many months, maybe years, they said.

"We will change, but we will not change that much," said UBS Chief Executive Officer Ralph Hamers, who will lead the new banking behemoth. "We will still be Swiss."

($1 = 0.9268 Swiss francs)

Source: Reuters

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Devin

Central Bank

Moves by authorities to avert a global banking crisis appeared to have lifted market confidence on Monday as investors welcomed emergency dollar liquidity from top central banks and a historic Swiss-backed acquisition of troubled Credit Suisse by UBS Group.

In a package orchestrated by Swiss regulators on Sunday, UBS Group AG will pay 3 billion Swiss francs ($3.23 billion) for 167-year-old Credit Suisse Group AG and assume up to $5.4 billion in losses.

Major central banks, faced with the risk of a fast-moving loss of confidence in the financial system, also scrambled on Sunday to bolster the flow of cash around the world with a series of coordinated currency swaps to ensure banks have the dollars needed to operate.

The Swiss banking marriage is backed by a massive government guarantee, helping prevent what would have been one of the largest banking collapses since the fall of Lehman Brothers in 2008.

Financial markets staged a modest relief rally in Asia on Monday but are wary about a range of risks including contagion, the fragile state of U.S. regional banks, and moral hazard.

"Policy makers will be hoping that the weekend's UBS buyout of troubled Credit Suisse will draw a line under recent market stresses," said Brian Martin, ANZ head of G3 economics in London.

"Central banks were already facing the conundrum of 'how much is enough?' in the face of resilient labour markets, given the lags with which their policy decisions affect economies. They now have a new conundrum: 'how much is too much?' for financial stability?"

Pressure on UBS helped seal Sunday's deal.

"It's a historic day in Switzerland, and a day frankly, we hoped, would not come," UBS Chairman Colm Kelleher told analysts on a conference call. "I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders," Kelleher said.

UBS CEO Ralph Hamers said there were still many details to be worked through.

"I know that there must be still questions that we have not been able to answer," he said. "And I understand that and I even want to apologise for it."

In a global response not seen since the height of the pandemic, the Fed said it had joined central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to enhance market liquidity. The European Central Bank vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was "instrumental" in restoring calm.

Unresolved Issues

Problems remain in the U.S. banking sector, where bank stocks remained under pressure despite a move by several large banks to deposit $30 billion into First Republic Bank, an institution rocked by the failures of Silicon Valley and Signature Bank.

On Sunday, First Republic saw its credit ratings downgraded deeper into junk status by S&P Global, which said the deposit infusion may not solve its liquidity problems.

U.S. bank deposits have stabilized, with outflows slowing or stopping and, in some cases, reversing, a U.S. official said on Sunday, adding the problems of Credit Suisse are unrelated to recent deposit runs on U.S. banks and that U.S. banks have limited exposure to Credit Suisse.

The U.S. Federal Deposit Insurance Corp (FDIC) is planning to relaunch the sale process for Silicon Valley Bank, with the regulator seeking a potential breakup of the lender, according to people familiar with the matter.

There are also concerns about what happens next at Credit Suisse and what that means for investors and employees.

UBS chairman Kelleher told a media conference that it will wind down Credit Suisse's investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some $7 billion by 2027.

The Swiss central bank said Sunday's deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse.

Credit Suisse shares had lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined confidence.

Under the deal with UBS, some Credit Suisse bondholders are major losers. The Swiss regulator decided that Credit Suisse bonds with a notional value of $17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders in the takeover deal announced on Sunday.

($1 = 0.9280 Swiss francs)

Source: Reuters

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Cohen

Political

President Emmanuel Macron's move to shun the National Assembly and push through an unpopular pension system overhaul without a vote in the lower house may secure a reform he says is needed for France's finances. But it may end up a Pyrrhic victory.

By using special constitutional powers instead of risking lawmakers rejecting the reform, Macron has given ammunition to the opposition and to trade union leaders who cast the reform as undemocratic.

It could also play into the far right's hands.

"It's a democratic coup," far-right leader Marine Le Pen told reporters after a chaotic session in parliament, where Prime Minister Elisabeth Borne was booed as she announced that the government would invoke article 49.3 of the constitution allowing it to pass the legislation without a vote.

Despite a series of costly sweeteners, the government concluded it had failed to garner enough votes from conservative lawmakers in the lower house to ensure passage for its plan to raise the minimum retirement age to 64 from 62.

Once known as a high-stakes political gambler, Macron chose to play it safe.

He was too concerned about the broader financial implications to risk jeopardising a reform meant to reassure investors and ratings agencies about French debt sustainability, a government source said.

However, weeks of heated debates in parliament and street protests drawing over 1 million people risked leaving a toxic legacy that could boost far-right populists, analysts said.

"This reform has all the ingredients to boost votes for parties on the radical right," said Bruno Palier, a political scientist at French university Sciences-Po.

Palier said bearing the brunt of the reform would be the lower middle-class, a segment of the population that already felt like it was the loser of globalisation, as it did in Britain before Brexit and in the United States before Donald Trump's election.

"This resentment is not going to disappear, it's going to morph into something different, it'll just wait for voting ballots to manifest itself again," he added.

Past leaders who have meddled with the retirement age have done so to their cost, Palier said, pointing to Nicolas Sarkozy's failure to win re-election in 2012 after he pushed the retirement age to 62 from 60 in 2010.

Le Pen Ambush

To be sure, claims of authoritarianism by the pension bill's critics are far-fetched.

Article 49.3 of the constitution, which Macron invoked to pass the reform, has been used by governments of the left, right and centre in the past. Former Socialist prime minister Michel Rocard resorted to the special powers it entails 28 times in the 1980s and 1990s.

However, from the outset Macron's government failed to make the case for reform.

Ministers initially sold the changes as necessary to save the pension system from collapse. They then explained that the changes were a "left-wing reform".

Political observers say Le Pen played her hand well.

She is well-placed to benefit from the way the debate unfolded, political sources and disillusioned voters have told Reuters, with Macron being barred from running for a third term in 2027 and no clear successor in sight.

"Mrs Le Pen is ready for the ambush," Laurent Berger, the head of the moderate CFDT union said on Thursday, hours before the vote. "The resentment, the social debt that's building, is going to be exploited by the populists and the far-right. It's scary," he said.

Le Pen has repeatedly stated her opposition to the reform but has instructed her colleagues in parliament to refrain from using obstructionist tactics like those of the radical left bloc, in line with her long-term goal of winning respectability.

At one point in the debates she even asked her lawmakers to stand and applaud the minister in charge of defending the reform, who had been called a "murderer" by one left-wing lawmaker.

A government source told Reuters Le Pen had appeared the respectable opponent in parliament as the left sought to block the bill with thousands of amendments and the centre-right bickered over whether to support the legislation.

"She even managed to look like the arbiter of debates, which is incredible," the source said.

Macron will want to turn the page quickly, with government officials already preparing more socially minded reforms.

But the end of debates in parliament may do little to quell anger on the streets. An Odoxa poll showed 62% of the French think protests should continue even once the bill is adopted.

Within moments of the government bypassing parliament, an impromptu demonstration took place on Paris' Place de la Concorde opposite the National Assembly.

The symbolism was powerful: It was there where Louis XVI was guillotined 230 years ago.

Source: Reuters

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Justin

Central Bank

Economic

Fed dilemma

It’s going to be a difficult meeting for Fed officials on Wednesday, who will have to decide whether the priority is to safeguard the stability of the US financial system or fight inflation at all costs.

Traders are betting that the episode in the banking sector will force the Fed to stop its tightening cycle soon, perhaps even at this meeting. The implied probability of a quarter-point rate increase next week stands at 80%, with a 20% chance that the Fed does nothing at all. Beyond that, markets are pricing in rate cuts for the summer.

Week Ahead – Fed Decision to Fuel Volatility in Nervous Market_1

Admittedly, this speculation seems overblown. The broader banking system and especially the big US players are well capitalized, so there isn’t much threat of a Lehman-style meltdown. Most of the stress is in smaller regional banks, which the Fed has already rushed to support by rolling out an emergency lending program.

Instead, the real enemy is still inflation. Fed officials have stressed that the metric they care most about is services inflation excluding shelter, which printed 6.9% last month. That’s too hot, and coupled with the strength in employment indicators, it doesn’t allow policymakers any room to stop tightening.

It was only last week that the Fed Chairman warned rates might be raised higher than what his central bank projected in December. Back then, Fed officials expected rates to end the year at 5.1%, but current market pricing sees them at only 4.2% by year-end. That’s a huge gap, and if those projections are maintained or raised further next week, it would probably ‘shock’ markets.

Week Ahead – Fed Decision to Fuel Volatility in Nervous Market_2

In other words, investors believe that if there is a rate increase next week, it will be the final one this cycle. But the Fed might say otherwise. It has already taken measures to shore up the banking system, and inflation is far too high to stop raising rates.

If the Fed indeed sticks to its guns, that could spark a strong repricing in the markets, propelling US yields higher and boosting the dollar in the process. In contrast, the main casualty might be the Japanese yen, so dollar/yen could experience a particularly violent reaction.

BoE meeting a coin toss

The United Kingdom has remained out of the spotlight lately, as investors are more nervous about banks in the US and Eurozone. In fact, most UK news has been positive lately, both politically and economically.

After several months of business surveys warning about a UK recession, the latest batch painted a brighter picture, revealing a recovery in new business orders that is positive news for future growth. Of course, the economy is not out of the woods. Inflation is still running at double-digits, as electricity prices have surged dramatically and post-Brexit worker shortages have exacerbated the issue.

Investors will receive an inflation update on Wednesday, ahead of the latest business surveys that will be released Friday alongside retail sales. But the main event will be on Thursday, when the Bank of England announces its decision.

Week Ahead – Fed Decision to Fuel Volatility in Nervous Market_3

Markets see this rate decision as a coin toss, pricing in 50-50 chances for a quarter-point rate increase or no action. This pricing seems fair, as the British economy is not in great shape and central bank officials have been hesitant to raise rates overall. Since the data flow has been stronger lately, the odds likely favor a rate hike, but it’s a close call.

As for sterling, the outlook seems cautiously negative. The UK economy might be stabilizing but is still fragile, its inflation problem is bigger than other nations, and the BoE is near the end of its tightening campaign. Combined with the pound’s sensitivity to the global investment mood at a time of turbulence in the markets, it’s tough to be optimistic.

Switzerland’s banking troubles

Switzerland has been at the epicenter of the recent banking panic, amid fears about the solvency of Credit Suisse. Nerves calmed after the Swiss National Bank pledged $54bn in emergency funding to the troubled bank, but the stress hasn’t disappeared as there is still elevated demand for derivatives that protect against a Credit Suisse default.

Despite this turmoil, investors still expect the SNB to raise rates by a quarter of a percent on Thursday. The rate increase is already fully priced in, so the market reaction will depend mostly on the economic commentary and any signals about future actions.

Week Ahead – Fed Decision to Fuel Volatility in Nervous Market_4

Bank troubles aside, the outlook for the Swiss franc looks positive. The SNB is still intervening in the FX market but it has switched sides in recent quarters – it is now buying francs on the open market to help the currency appreciate. Coupled with ongoing rate hikes and resurfacing concerns about the world economy, the environment is favorable for the safe-haven franc.

The wild card is Credit Suisse, but judging by the forceful policy response, it is likely that it will be protected.

Finally on the data front, the spotlight will fall on the Eurozone, where the latest PMI business surveys will be released Friday. Over in Canada, inflation and retail sales stats will be released Tuesday ahead of the minutes of the latest Bank of Canada meeting on Wednesday.

Source:XM

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Alex

Economic

Deposit insurance is as American as apple pie, and twice as unhealthy. After Silicon Valley Bank and Signature Bank failed over the weekend, Uncle Sam swept in, promising to pay back all of their customers. That move may have prevented a wave of copycat bank runs. But the idea of bailing out savers without limit is both unworkable and unhelpful.

Risk-free banking for most households is the norm almost everywhere, but it's a recent invention. Save for the United States, which kicked off the trend in 1933, most countries only launched formal deposit guarantees within the last 50 years. Britain joined the club in 1979, and Europe mandated coverage for member states' banks in 1994. China was a latecomer in 2015. New Zealand is one of the few holdouts, though a scheme is working its way through parliament.

The main charm of deposit guarantees is that they reduce the risk of bank runs. The failure of SVB Financial highlighted the weakness in that thinking. Bank deposits in the United States are guaranteed up to $250,000, and over 90% of SVB's accounts held more than that sum. It's a widely shared vulnerability. Around $7 trillion of all U.S. deposits are uninsured, 40% of the total. Thirty years ago it was less than 20%.

Deposit Insurance Is Addiction Not Medication_1

SVB's customers weren't entirely wrong to flee when they sensed danger. When a bank fails the Federal Deposit Insurance Corp, which backs savers using funds raised from a levy on the banking industry, usually steps in and finds a buyer to take on depositors of all sizes. But not always. The Washington Federal Bank for Savings, which failed in 2017, left uninsured depositors high and dry. Even today, only 42% of claims have been paid back, according to the FDIC.

Though the FDIC has only promised to make SVB and Signature's customers whole, the idea that it has set a template for the industry helped take the heat out of the crisis. The question is what happens next. At some point, the authorities will have to spell out their position. There are broadly three choices they could make.

One is to try and throw a bigger and more permanent protective net around savers. When the financial crisis struck in 2008, the FDIC heroically pledged to back all deposits in non-interest-bearing accounts that weren't already covered. It can't do that this time. The Dodd-Frank Act of 2010 restricts the FDIC to offering unlimited guarantees to depositors of an individual bank, which must be in receivership. FDIC boss Martin Gruenberg could still team up with Treasury Secretary Janet Yellen and Federal Reserve Chair Jay Powell to propose blanket insurance if their agencies agreed a crisis was afoot, but they would need Congressional approval, which they almost certainly would not get. They would also need to overhaul regulation to make sure even smaller banks could fail without hitting depositors.

Alternatively, regulators could invite the market to provide a solution – say, with privately funded insurance for deposits over the guaranteed limit. Massachusetts has that already, though its banks are small. Germany too enjoys unlimited insurance courtesy of a club of private banks. If U.S. lenders or their customers were prepared to pay a fair price to make deposits run-proof, maybe a consortium of financiers could step in. The FDIC discussed that possibility back in 2007, but concluded that a scheme of that type would probably need some kind of government backstop.

The trouble is that deposit insurance is like Novocaine – the higher the dose, the more the patient becomes numb. SVB's wealthy clients already turned a blind eye to the bank's fickle funding and losses in its investment portfolio. If they knew their deposits were riskless, they would have been even more supine. Conversely, if SVB's managers believed their patrons could flee, they might have been more careful about loading up on long-dated securities they couldn't easily sell.

For that reason, the best option is probably to do nothing – or better still, lower the deposit insurance limit. That might seem cruel. Deposit guarantees, with their aura of protecting the small saver, have a folksy appeal reinforced by the cinematic lesson in banking that is "It's a Wonderful Life." But most Americans have far less than $250,000 in their bank. At JPMorgan the average insured deposit is just $7,000.

For tens of millions of customers, the $250,000 limit is a benefit they do not need, but still help fund. Lenders must pay a levy to the FDIC to cover future payouts, a sum that rose this year because the fund is understocked. The fee is calculated not just on insured deposits but on all of its liabilities. Like any cost, bankers have an incentive to offset that through fees to customers, which tend to fall hardest on low-income households. Lowering the limit therefore ought to appeal to both small-government Republicans and progressive Democrats.

With savers and investors jittery, regulators will need to tread carefully. It's hard to get uninsured depositors to understand the dangers they face. If SVB's venture capital and technology startup customers were oblivious to the risks, others are unlikely to be more vigilant. And if savers find themselves on the hook for small banks' losses, funds will fly to larger lenders like JPMorgan and Bank of America, or migrate to non-banks like money market funds. Over time, though, that's preferable to the false pretense that uninsured funds are safe come hell or high water.

Once the smoke has cleared, the healthiest thing would be to cut the 90-year riskless-banking convention down to size. After all, the U.S. system is an outlier in its generosity. Canada's insured limit is $73,000, one-third that of its neighbor, even though the two countries' bank balances per capita are the same. Britain's limit is $100,000, as is Switzerland's. The FDIC used to cap insurance at the same level, but raised it during the 2008 financial crisis. In setting the bar too high, the architects of U.S. finance have made banking more risky, and less fair.

Source: YAHOO

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Kevin Du

OpenAI has announced a major upgrade to the technology that underpins ChatGPT, the seemingly magical online tool that professionals have been using to draft emails, write blog posts and more. If you think of ChatGPT as a car, the new language model known as GPT-4 adds a more powerful engine.

The old ChatGPT could only read text. The new ChatGPT can look at a photo of the contents of your fridge and suggest a dinner recipe. The old ChatGPT scored in the 10th percentile on the bar exam. The new one was in the 90th.

In the hours since its release, people have used it to create a website from a hand-drawn sketch or look through a dating website for an ideal partner.

But this is the fun part of unleashing a powerful language model to the public. The honeymoon period. What are the long-term consequences? OpenAI (once again) hasn't disclosed the datasets it used to train GPT-4, so that means researchers can't scrutinise the model to determine how it might inadvertently manipulate or misinform people.

More broadly though, it ushers in a new era of hyper-efficiency, where professionals will have to work smarter and faster - or perish.

Enabling staff to 'assist more people more quickly'

There is no better example of this than Morgan Stanley, which has been using GPT-4 since last year. According to an announcement by the bank on Tuesday, Morgan Stanley trained GPT-4 on thousands of papers published by its analysts on capital markets, asset classes, industry analysis and more, to create a chatbot for its own wealth advisers. About 200 staff at the bank have been using it daily, the company said.

"Think of it as having our Chief Investment Strategist, Chief Global Economist, Global Equities Strategist and every other analyst around the globe on call for every advisor, every day," Morgan Stanley analytics chief Jeff McMillan said in an official statement.

But here was the line that really stood out from OpenAI's own write-up of the case study:

"McMillan says the effort will also further enrich the relationship between Morgan Stanley advisors and their clients by enabling them to assist more people more quickly."

How much more quickly? A spokesperson for Morgan Stanley tells me its advisers can now do in seconds what they used to do in half an hour, such as looking at an analyst's note to advise a client on the performance of certain companies and their shares.

Gpt-4 Will Raise the Bar for Humans

Powerful AI systems like GPT-4 aren't going to replace large swaths of professional workers, as many have instinctively feared. But they will put them under greater pressure to be more productive and faster at what they do. They will raise the bar on what is considered acceptable output and usher in an era of ultra-efficiency unlike anything we've seen before.

That is what partly happened to professional translators and interpreters. As artificial intelligence tools like Google Translate and DeepL grew in popularity among business customers, many translators feared they would be replaced. Instead, they were expected to increase their output.

Before the advent of translation tools, a professional would be expected to translate between 1,000 and 2,000 words a day, according to Nuria Llanderas, who has been a professional interpreter for more than 20 years.

"Now they are expected to manage 7,000," she says. Her industry peers have predicted more AI systems will start supporting them on simultaneous translation, but that could also mean more work for the human translators in practice, checking that the machine's output isn't wrong.

It will also raise the bar on the humans' performance. "With the extra help you have no excuses to leave anything out," Llanderas adds.

Much of this is typical of the march of technology. Smartphones allowed us to be connected to work at all times. Slack allowed us to communicate with more people inside a company, more seamlessly.

But such tools also kept us further chained to work, squeezing out minutes in the day that workers might have used in the past for contemplation, strategic thinking or just taking a breather.

GPT-4 clearly has the potential to wring more value out of human workers, but it may well come at the cost of our mental energy. However brilliant these models become, watch out for how they might take you a tiny step closer to burnout.