Finance

It might not feel like it, but Britain is not unique in facing difficult budget choices. France and Germany have also seen governments destabilised or fall over attempts to pass budgets. Low growth, ageing populations and rising demands on the welfare state are putting pressure on public finances right across the continent. What is striking, however, is how some of the countries that were once held up as cautionary tales during the eurozone crisis (Portugal, Italy, Ireland, Greece and Spain) have responded. They undertook painful reforms: raising retirement ages, restructuring their welfare systems, making labour markets more flexible and, in some cases, linking pensions to life expectancy. As a result, they are now seeing stronger growth and lower borrowing costs than many of their northern neighbours. By contrast, there has been less urgency in the UK this past year. We are already on course to spend far more on benefits and debt interest in the next decade, even before additional pressures on the health and welfare systems are factored in. Simply opting for higher spending without confronting the underlying structure of the state is not a sustainable strategy. The lesson from Europe is not that reform is easy or popular. It rarely is. But it is better to confront these choices on your own terms than to wait for markets or external shocks to force them upon you. That is the debate we need to have in Britain: how to protect the most vulnerable while reshaping the welfare state and public spending so that our economy can grow and our finances remain credible. Read more in my column for today's Sunday Times here: https://lnkd.in/eTuWcNBK

𝐓𝐡𝐞 𝐍𝐞𝐰 𝐓𝐚𝐱 𝐀𝐜𝐭𝐬 𝐚𝐧𝐝 𝐓𝐚𝐱 𝐈𝐃 – 𝐖𝐡𝐚𝐭 𝐘𝐨𝐮 𝐍𝐞𝐞𝐝 𝐭𝐨 𝐊𝐧𝐨𝐰   The Nigeria Tax Administration Act (NTAA) mandates the use of Tax Identification Numbers (Tax ID) for certain transactions. Understandably, many Nigerians have questions about what this means for banking, businesses, and everyday life.   This FAQ provides answers, clarifies misconceptions, and highlights the safeguards in place to protect citizens while ensuring a fairer, more transparent tax system.   𝐅𝐫𝐞𝐪𝐮𝐞𝐧𝐭𝐥𝐲 𝐀𝐬𝐤𝐞𝐝 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬   𝑸1. 𝑰𝒔 𝒊𝒕 𝒕𝒓𝒖𝒆 𝒕𝒉𝒂𝒕 𝒆𝒗𝒆𝒓𝒚𝒐𝒏𝒆 𝒎𝒖𝒔𝒕 𝒐𝒃𝒕𝒂𝒊𝒏 𝒂 𝑻𝒂𝒙 𝑰𝑫 𝒃𝒆𝒇𝒐𝒓𝒆 𝒐𝒑𝒆𝒏𝒊𝒏𝒈 𝒐𝒓 𝒄𝒐𝒏𝒕𝒊𝒏𝒖𝒊𝒏𝒈 𝒕𝒐 𝒐𝒑𝒆𝒓𝒂𝒕𝒆 𝒂 𝒃𝒂𝒏𝒌 𝒂𝒄𝒄𝒐𝒖𝒏𝒕? A1. Yes, but with some clarifications. Section 4 of the NTAA requires all taxable persons to register with the tax authority and obtain a Tax ID. A “taxable person” is someone who carries on trade, business, or other economic activity to earn income. Banks and other financial institutions are required to request a Tax ID from taxable persons. Individuals who do not earn income and are not taxable persons are not required to obtain a Tax ID.   𝑸2. 𝑰𝒔 𝒕𝒉𝒊𝒔 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒎𝒆𝒏𝒕 𝒏𝒆𝒘? A2. No. This is not a new policy. It has been in place since the Finance Act, 2019, which amended section 49 of the Personal Income Tax Act. Since January 2020, individuals opening a business account have been required to provide a Tax Identification Number (TIN). The NTAA only strengthens and harmonises this requirement. Read the FAQ for more.

Our work that contributed to the development of the IMF's Integrated Policy Framework (IPF) is now forthcoming in Econometrica. Many thanks to my fantastic co-authors Suman, Emine, Francisco, and Filiz. Here is the final version: https://lnkd.in/efcayUnj ➡️ Like the 1970s Mundell-Fleming paradigm that was developed at the IMF, the IPF is also home grown at the IMF. It substantially modernizes the toolkit used to advise countries on macro-management. ➡️ Unlike the Mundell-Fleming paradigm, the IPF allows for realistic frictions in financial markets and advices on the integrated use of monetary/exchange rate policy, foreign exchange intervention, macroprudential measures, and capital flow management measures to stabilize economies. ➡️ Integrated use does not mean countries use all instruments all the time. In most cases, limiting intervention to monetary/exchange rate policy is the best response. In limited cases, other instruments can help. The IPF explains when and how.

The African fintech landscape is undergoing a significant transformation, moving away from the growth-at-all-costs model towards a more sustainable and strategic approach. As the market is projected to reach a staggering $47 billion in revenue by 2028, this shift is crucial for long-term success. Our McKinsey Africa analysis reveals that despite a 51% contraction in fintech funding in 2024, the industry is witnessing a surge in mergers and acquisitions. This consolidation is aimed at creating larger, more profitable entities, signaling a new era of stability and growth. Moreover, the integration of generative AI is poised to revolutionize the sector by enhancing customer experiences and improving fraud prevention. However, challenges such as regulatory complexities and the fierce competition for talent remain significant hurdles. On the horizon, untapped opportunities in cross-border payments and embedded finance offer a promising future for innovation and expansion in Africa's fintech landscape. Learn more https://mck.co/4hCIdtQ

PRIMER: The Unwinding of Leveraged Bond Trades That’s Shaking Markets. Last week, heavily leveraged bond trades were unwound in a spectacular fashion. And while the worst might be behind for now, I don’t see a structural fix to this bond market imbalance. There are two very popular, heavily leveraged trades in bond markets: swap spreads and basis trades. Both involve going long the cash Treasury bond, and going short something against it: the basis trades uses the Treasury future as short leg, and the swap spread uses interest rate swaps. In both cases, the trades involve a large use of leverage because the purchase of the cash Treasury bond is financed using the repo market: for a $100M trade in basis or swap spreads, due to repo market funding hedge funds must only use a tiny portion (~2-5%) of the needed capital to enter the transaction. Let’s focus on the swap spread trade for a second. As long as repo markets remain orderly, investors can use it to fund purchases of 30-year US Treasuries, pay a fixed 30-year interest rate swap against it and earn a whopping 90 (!) bps per year in ‘’swap spreads’’ - see chart below. But why on earth would investors be able to earn such a premium on US government bonds? It’s because of regulation and the growing supply/demand imbalance problem in US Treasury markets. Bank regulation has crippled the ability of market makers to warehouse risks, which means their ability to absorb large issuance of Treasuries on their balance sheet has diminished. On top of it, Treasury departments of US banks are penalized for owning large amount of Treasuries from regulations like the Supplementary Leverage Ratio (SLR) which don’t exempt USTs from its calculations. All of this is happening at a time when the supply of US Treasuries has dramatically grown because of persistent budget deficits, forcing dealers to swallow bonds at auctions and testing their limits. Given the supply/demand imbalance, the marginal buyer of US Treasuries tends to be the leveraged hedge fund which gets involved in basis or swap spread trades and demands a hefty premium as compensation. And this fragile system holds until it doesn’t. In the last 10 days, several hedge funds were hit by margin calls given turbulent markets. To meet these margin calls, they had to de-risk their portfolios and sell every asset they could – including Treasuries. As Treasuries got caught in the deleveraging mania, basis trades and swap spreads suffered. The first stop losses in these highly leveraged trades were hit, and then a self-fulfilling VaR shock occurred. All hedge funds involved in the same trade had to deleverage at the same time without a marginal buyer of last resort. Ouch. And it’s not clear how this problem will get structurally fixed - so watch out! Thanks for reading and have a beautiful day, Alf (Founder & CIO of macro hedge fund Palinuro Capital)

📢 New analysis on the leaked EU Omnibus Proposal – What will be the planetary price of simplification? Can Europe combine sustainability and competitiveness? Big changes are certainly coming to the EU’s sustainability reporting landscape. A leaked draft of the European Commission’s Omnibus Proposal suggests major rollbacks in the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy Regulation. 💡 To help navigate these changes, our put together a comparison table—let us know if it’s useful! Here are some highlights of what’s being proposed: 🔹 𝗖𝗦𝗥𝗗 𝘁𝗵𝗿𝗲𝘀𝗵𝗼𝗹𝗱 𝗿𝗮𝗶𝘀𝗲𝗱 – Only companies with 1,000+ employees and €450M turnover may need to comply (previously 250 employees, €40M). This scopes out 85% of firms previously covered. 🔹 𝗦𝗲𝗰𝘁𝗼𝗿-𝘀𝗽𝗲𝗰𝗶𝗳𝗶𝗰 𝘀𝘁𝗮𝗻𝗱𝗮𝗿𝗱𝘀 𝘀𝗰𝗿𝗮𝗽𝗽𝗲𝗱 – Industry-specific ESG reporting rules may be permanently shelved. 🔹 𝗗𝘂𝗲 𝗱𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 𝘄𝗲𝗮𝗸𝗲𝗻𝗲𝗱 – Companies only need to assess direct suppliers, not the full supply chain. 🔹 𝗖𝗶𝘃𝗶𝗹 𝗹𝗶𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗿𝗲𝗺𝗼𝘃𝗲𝗱 – Under CSDDD, firms won’t face legal consequences for failing to meet sustainability obligations. 🔹 𝗧𝗮𝘅𝗼𝗻𝗼𝗺𝘆 𝗿𝗲𝗽𝗼𝗿𝘁𝗶𝗻𝗴 𝗺𝗮𝘆 𝗴𝗼 𝘃𝗼𝗹𝘂𝗻𝘁𝗮𝗿𝘆 (not directly mentioned in the leak) – Instead of mandatory reporting, firms could opt-in, aligning with corporate lobbying efforts. ⚖️ I am wondering about if this is simplification or just plain deregulation. In addition, what will the effects be of a watered-down EU Green Deal for the bloc's sustainability leadership and for firms that have already invested in reporting? How do you see the balance between competitiveness and sustainability? Can we reduce red tape and still protect the planet? Drop your thoughts below! 👇 #CSRD #CSDDD #EU #Sustainability #ESG #SustainabilityReporting #ESGRegulation #Climate #Finance #CorporateResponsibility

An influential stream of research finds that companies that emit more carbon have higher stock returns. This "carbon premium" has been interpreted as evidence that emitting companies suffer a higher cost of capital and thus markets are correctly pricing in carbon risk. However, the ESG literature typically interprets higher stock returns as outperformance due to mispricing. In a new paper with Yigit Atilgan, Özgür Demirtaş, and Doruk Gunaydin, we study earnings surprises to disentangle these explanations. We find that emitting companies enjoy positive earnings surprises, and the four earnings announcements per year explain 30-50% of the annual carbon premium. Consistent with prior results, our findings only hold for levels of and changes in emissions, but not emissions intensities or disclosed emissions only. Our results suggest that, where it exists, the carbon premium arises from an unpriced externality - emitting companies are able to "get away with" contributing to global warming. Markets are not fully pricing in carbon risk, highlighting the need for government action. https://lnkd.in/e9QnXars

Europe's launch of a digital wallet is a game changer for #banking and #payments, far beyond than we can imagine. Let’s take a look.   What happened?   On 29 Feb 2024 the EU adopted regulation to launch a European Digital Identity Wallet (EUDIW) that will harmonize #digitalidentity across Europe.   Main provisions:   —   EUDIW is an app allowing citizens to digitally identify themselves, store and manage identity data and official documents in digital form   —   Many wallets in each member state with the same technical standards, UX and functionality   —   Addressing both online and offline public and private services across the EU —   Recognized throughout Europe   —   Voluntary   —   Free for natural persons, businesses may be subject to fees   —   User control over their personal data   —   E-signature   —   EUDIW Toolbox based on the Architecture and Reference Framework (ARF) defining common specifications, referenced in implementing acts (legislative texts) across all EU Member States   —   Pilot projects until 2025 - 360 private companies and public authorities across the EU - testing everyday scenarios   —   Successor of the eIDAS regulation (launched in 2014)   Example use cases:   —   Access or open a bank account —   Perform onboarding process (AML, KYC) —   Initiate a payment —   Apply for a loan —   Submit a tax declaration —   Enroll for university —   Rent a car or book a hotel online —   Strong Customer Authentication   Implications for the #finance industry:   —   EUDIWs will unify all physical documents (IDs, passports, driving licenses, etc) under a digital front layer   —   Financial institutions and online platforms with more than 45 mn users (i.e. Amazon, Facebook) will be obliged to accept EUDIW   —   Banks will not have to maintain anymore their own authentication mechanisms, however the wallet will largely complement and not replace banks’ solutions   —   Service providers, such as PSPs or credit card companies may have to pay for identification services (i.e. to onboard customers)   —   PSD2 authentication requirements will be met via EUDIWs paving the ground for an increase in payment initiation and account information calls and boosting POS-based use cases such as QR code payments or payment initiation at POS   —   A combination with the Digital Euro is almost certain   Players in #financialservices will be influenced across 4 directions:   —   User experience —   Compliance —   Reduction of fraud —   New use cases   Impact:   —   Europeans can save up to 855,000 hours of time and businesses more than €11 bn a year   —   80 % EU citizens' adoption expected by 2030   Timing:   —   Publication in the EU Official Journal – Mar 2024   —   6 - 12 months for Implementing Acts   —   Within 24 months after Implementing Acts, Member States must provide EUDIWs. Organizations must accept them as an authentication method in the following year   Opinions: my own, Graphic sources: European Commission, Innopay, Gataca

The $185,000 Mistake Hiding in Your Old 401(k) I once discovered a client had been "saving" for retirement for 10 years. Except he wasn't investing. His money had been sitting in cash, earning almost nothing. Here's what most people don't know. When you leave a job with $1,000-$7,000 in your 401(k), your employer can force transfer it to an IRA. That money automatically gets parked in a money market fund where it barely grows. The average American changes jobs 12 times. That's potentially 12 forgotten accounts. The Math Should Terrify You: • $4,500 in cash for 40 years at 3% = $14,700 • $4,500 invested in the S&P 500 at 10% = $200,000+ • Cost of inaction = $185,000+ Currently, 10 million Americans have $28 billion trapped in these forgotten IRA accounts. By 2030, it could be $43 billion in lost compound growth. Your 3-Step Recovery Plan: 1️⃣ Contact every former employer. Ask if they're still managing a retirement account in your name. 2️⃣ Can't reach them? Search the Department of Labor's EFAST database for the plan administrator's contact info. 3️⃣ Check your state's unclaimed property database through NAUPA (National Association of Unclaimed Property Administrators). Found money sitting in cash? Move it to a real investment immediately. Time is your greatest asset as an investor. Every day of delay costs you exponentially more. What forgotten accounts might be costing you right now?

Visa & Mastercard are moving faster into stablecoins than anyone expected. And the scale is already massive… Stablecoins are no longer a side experiment, they’re becoming a core payments rail for the card networks. Here are numbers that matter: ► Visa’s stablecoin-linked card spend is up 4x YoY ► 130+ stablecoin card programs live in 40+ countries ► Mastercard: 100+ crypto card programs globally ► Rain’s stablecoin cards → $2B+ annualized spend ► Mastercard is reportedly in talks to acquire Zerohash for $2B: https://lnkd.in/d9Txg3Eb ► Visa already invested in stablecoin startup BVNK and custodian Anchorage What’s driving this? In markets like LATAM and Africa, banks struggle to access USD liquidity. Stablecoins fix that — instantly. And stablecoin-backed prepaid cards let users hold dollars and spend locally, with fintech apps doing the behind-the-scenes conversion. For merchants, the value is even clearer: Funds settle faster while interchange remains the same. Both networks are also quietly enabling banks to issue their own stablecoins, rather than competing with them, a strategic move to stay indispensable. Credit cards won’t be replaced anytime soon (on-chain credit isn’t there yet), but Visa is already studying crypto-backed credit products for the next wave. What’s also interesting: Visa & Mastercard aren’t launching their own stablecoins, they’re becoming the infrastructure helping banks launch theirs. A strategic move to stay indispensable without competing directly with issuers. At the same time, merchants love stablecoin settlement because funds arrive faster, even if interchange stays the same. And while stablecoins won’t replace credit yet (no on-chain credit model exists at scale), Visa is openly exploring crypto-backed credit cards, which they believe could be a “massive opportunity.” My take: This is no longer “crypto payments.” This is a new USD distribution model for the developing world, and the card networks are positioning themselves as the global rails for it. Five years from now, stablecoin-backed cards may be one of Visa’s and Mastercard’s biggest growth engines. What do you think? Find this helpful? [ 𝗿𝗲𝗽𝗼𝘀𝘁 ] Anything to add about this subject? [𝗶𝗻𝘃𝗶𝘁𝗲𝗱 𝘁𝗼 𝗰𝗼𝗺𝗺𝗲𝗻𝘁] Nice story, Marcel. Next! [ 𝗹𝗶𝗸𝗲 ] (It’s free, but means a lot to me 👍)