Drivers of Euro Area Bank Deposit Pricing 2007–2024

 In the Euro Area between 2007 and 2024, bank deposit pricing has been driven by a complex interplay of monetary policy, depositor behavior, and market structural factors. The sources highlight that the most significant pricing factor is the pass-through of policy rates (often called the deposit beta), which has reached historically low levels in the recent 2022–2024 hiking cycle.

The following factors are central to understanding these pricing dynamics:

1. Depositor Heterogeneity and Behavior

The primary driver behind the sluggish increase in deposit rates since 2022 is the changing composition of the depositor base.

• Rate Sensitivity: Depositors are highly heterogeneous. Higher-income households and higher-revenue firms are more sensitive to interest rate changes and have increasingly shifted funds to alternative, higher-yielding products (like money market funds or term deposits).
• Compositional Shift: As rate-sensitive depositors exit overnight accounts, the remaining pool consists of inertial, low-balance depositors who prioritize liquidity and convenience. This reduced average elasticity allows banks to exercise greater market power and keep rates low.
• Income and Geography: Depositors in higher-income Northern European countries tend to be more rate-sensitive and exhibit higher deposit betas compared to those in lower-income Southern countries.

2. Bank Market Power and Competition

• Markdowns: Banks exert substantial market power, with markdowns on overnight deposits accounting for approximately 92 percent of gross revenue.
• Market Concentration: Market structure plays a role, as indicated by the Herfindahl–Hirschman Index (HHI). Banks in more concentrated markets can offer lower rates because customers face fewer alternatives.
• Scale Economies: Larger banks with extensive branch networks and more employees per branch tend to earn higher gross revenues on deposits, suggesting economies of scale in deposit-taking.

3. Monetary Policy Regimes

Deposit pricing is highly asymmetric and state-dependent:

• Hikes vs. Cuts: Pass-through is significantly lower when policy rates are increasing than when they are decreasing.
• Negative Rate Regime: The period of negative ECB policy rates (2014–2022) created a "zero lower bound" floor for most retail deposits, leading to a compressed yield curve where nearly all depositors remained in overnight accounts. The subsequent normalization in 2022 triggered the compositional shift that weakened pass-through.

4. Limited Role of Bank Characteristics

Surprisingly, the sources indicate that bank-specific balance sheet characteristics have a weak correlation with deposit pricing:

• Factors such as excess liquidity (from ECB operations), capital ratios (CET1), and credit ratings have shown minimal or negligible economic magnitude in determining deposit betas.
• This suggests that the sluggishness of deposit rates is a market-wide phenomenon driven more by aggregate depositor behavior than by the specific constraints of individual banks.

5. Product Characteristics

• Maturity: Sight (overnight) deposits have much lower betas than term deposits. This is attributed to the "money-like" convenience yield sight deposits provide, for which depositors are willing to accept lower returns.
• Opportunity Cost: The attractiveness of the "outside option" (non-bank savings) scales with market rates, driving the substitution away from bank deposits when policy rates rise.

The sources indicate that monetary policy transmission to bank deposits in the Euro Area is significantly influenced by the prevailing policy regime, the history of interest rates, and the resulting behavior of depositors. The impact of the European Central Bank's (ECB) policy is characterized by low and asymmetric pass-through (the "deposit beta"), which has reached historically low levels during the recent normalization cycle.

The following sections detail the interaction between monetary policy, Quantitative Easing (QE), and deposit pricing:

1. The Impact of the Negative Rate Regime (2014–2022)

The prolonged period of negative ECB policy rates fundamentally altered the deposit market.

• Yield Curve Compression: Negative rates compressed the yield curve, making alternative, higher-yielding products scarce.
• Zero Lower Bound (ZLB): Because banks treated zero as an effective floor for most retail deposits, there was little incentive for even rate-sensitive depositors to move their money. This led to a large, undifferentiated pool of funds sitting in overnight accounts.
• Weakened Pass-through: The sources document a significant decline in deposit pass-through during this era compared to positive-rate regimes.

2. Policy Normalization and the 2022–2024 Hiking Cycle

The rapid tightening that began in 2022 saw a sluggish adjustment of deposit rates, with the deposit beta dropping from approximately 0.3 in the 2007–2008 cycle to just 0.1 in 2022–2024.

• Compositional Shift: The sources argue that normalization triggered a massive shift in the depositor base. As rates rose, the most sensitive depositors—who had been "stuck" in overnight accounts during the negative-rate years—finally exited for higher-yielding term deposits or outside options like money market funds.
• Increased Market Power: This exit left behind a pool of inertial, low-balance depositors who are less responsive to interest rate changes. Consequently, banks gained greater market power and could keep overnight rates low despite rising policy rates.

3. The Role of QE and Excess Liquidity

The sources address the theory that the ECB’s balance sheet expansion (QE) and the resulting excess liquidity held by banks might be responsible for low deposit rates.

• Supply-Side Theory: Some analysts suggest that when banks hold large amounts of reserves, they have less need to compete for deposits, which leads to lower remuneration.
• Empirical Findings: Surprisingly, the structural model and empirical analysis in the sources find weak or negligible correlation between a bank's excess liquidity and its deposit pricing.
• Counterfactual Result: Removing bank-side heterogeneity (including liquidity and capital ratios) in counterfactual tests produced deposit rates that closely tracked actual rates. This suggests that the sluggish pass-through is primarily a depositor-driven phenomenon, rather than a direct result of QE-induced liquidity gluts.

4. Asymmetry in Monetary Policy Transmission

The sources document that deposit pricing is highly asymmetric across policy cycles.

• Hikes vs. Cuts: Banks respond more swiftly to policy rate cuts than to hikes.
• Profitability: This asymmetry allows banks to boost their net interest margins in the early phases of a tightening cycle by keeping deposit costs low while lending rates rise more quickly.

In summary, while the expansion of the ECB's balance sheet through QE provided the liquidity context, the sources conclude that the history of the policy regime (specifically the transition from negative to positive rates) was the primary catalyst for the recent decline in deposit betas through its effect on depositor composition.

In the context of Euro Area bank deposit pricing from 2007 to 2024, market heterogeneity is identified as a first-order determinant of how interest rates are set. The sources document that the sluggish pass-through of policy rates to depositors (the "deposit beta") is primarily driven by the diverse behaviors of different market participants rather than structural failures among banks.

The sources categorize market heterogeneity into several key dimensions:

1. Depositor Type: Households vs. Firms

There is a stark difference in how households and firms respond to interest rate changes:

• Rate Sensitivity: Firms are significantly more rate-sensitive than households. A one-percentage-point increase in interest rates increases a bank's market share of firm deposits by approximately 1.35 percent, compared to only 0.53 percent for household deposits.
• Pricing Outcomes: Because firms are more likely to move their funds in search of yield, banks offer them higher interest rates and apply smaller markdowns compared to households.

2. Geographic Heterogeneity: Northern vs. Southern Europe

Deposit pricing varies significantly across the Euro Area based on geography and national economic conditions:

• Income Levels: Depositors in higher-income Northern European countries (such as Germany or the Netherlands) are generally more rate-sensitive and exhibit higher deposit betas than those in lower-income Southern countries (such as Italy, Spain, or Greece).
• Beta Variation: Banks in Southern countries increased their deposit rates less than those in the North during the 2022–2024 hiking cycle. This is attributed to Southern depositors being less likely to switch banks or seek alternatives, potentially due to lower average deposit values or differences in financial sophistication.

3. Within-Market Heterogeneity (Income and Wealth)

Even within the same country, depositors behave differently based on their financial resources:

• The "Exit" of the Wealthy: High-income households and high-revenue firms hold disproportionately large balances and are the most sensitive to interest rates. When policy rates rise, these depositors are the first to shift funds from overnight accounts to term deposits or "outside options" like money market funds.
• Concentration: In a representative market like Italy, the top 10 percent of depositors hold 28 percent of total household deposits.

4. Product Heterogeneity: Sight vs. Term Deposits

The sources highlight a fundamental divide between deposit products:

• Convenience Yield: Sight (overnight) deposits have much lower betas than term deposits. This is because sight deposits provide a "money-like" convenience—liquidity and transaction services—for which depositors are willing to accept lower returns.
• Maturity Premia: Banks earn higher gross returns on term deposits because they can invest these "locked-in" funds in longer-duration, higher-yielding assets.

5. Bank-Side Heterogeneity and Its Limited Impact

While banks differ in size, branch networks, and capital strength, the sources find these factors have a surprisingly weak correlation with deposit pricing.

• Scale Economies: Larger banks with extensive branch networks and more employees per branch do earn higher gross revenues, suggesting some economies of scale.
• Negligible Effects: However, counterfactual analysis shows that if you removed bank-level differences (like capital ratios or excess liquidity), deposit rates would still look nearly identical to actual rates. This confirms that the recent drop in deposit betas is a depositor-driven phenomenon common to the entire market, rather than a result of specific bank characteristics.

The Core Mechanism: The "Compositional Shift"

Heterogeneity drives the market through a compositional shift in the depositor pool. When rates rise, the "rate-sensitive" segment of the market exits overnight accounts. This leaves banks with a core group of inertial, low-balance depositors who prioritize convenience over yield. Because this remaining pool is less likely to leave, banks gain increased market power and can keep interest rates low despite rising policy rates.

The sources highlight several systemic implications of bank deposit pricing for the Euro Area, primarily concerning the resilience of the banking sector, the effectiveness of monetary policy transmission, and potential risks to financial stability.

1. Banking Sector Resilience and Profitability

The most immediate systemic implication is the impact on bank profitability, which is a "crucial element of the banking sector's resilience". Net interest income (NII) is the most significant component of these profits, and it has recently exhibited substantial fluctuations because deposit rates have not adjusted in line with lending rates. This "markdown" on deposits accounts for a vast majority of gross revenue, effectively boosting bank profits in the short term when policy rates rise.

2. Effectiveness of Monetary Policy Transmission

The sources suggest that the "deposit channel" of monetary policy is highly state-dependent and influenced by the recent history of interest rates.

• Weakened Pass-through: After a long period of low or negative rates, policy normalization triggers a "compositional shift" where the most rate-sensitive depositors exit overnight accounts. This leaves a more inertial depositor base, which weakens the pass-through of policy rates precisely when the central bank is attempting to tighten financial conditions.
• Lags and Asymmetry: Because banks respond more swiftly to rate cuts than to hikes to protect their margins, the timing and impact of monetary policy can be asymmetric and difficult to predict using standard models.

3. Financial Stability and "Deposit Flightiness"

The sources document a feedback mechanism that creates a potential long-term risk to financial stability:

• Reliance on Inertial Depositors: As rate-sensitive depositors leave for higher-yielding alternatives, banks become "increasingly reliant on a core group of inertial depositors".
• Unpredictable Behavior Under Stress: While these depositors are currently stable, their behavior during periods of financial stress is "difficult to predict". If a stress event increases the salience of interest rates or alternative investment opportunities, these supposedly inertial depositors could exhibit sudden "flightiness," potentially leading to liquidity issues for banks.

4. Implications for Regulation and Competition Policy

The sources argue that traditional interventions may have limited systemic impact:

• Limited Role of Bank Structure: Because bank-specific characteristics (like capital ratios or excess liquidity) and market concentration have limited explanatory power for pricing, interventions targeting only the market structure may have modest effects on deposit rates.
• Demand-Side Focus: Instead, the sources suggest that systemic improvements in deposit pricing could come from policies that improve financial literacy and awareness of alternative savings products. By increasing the number of rate-sensitive depositors, these policies could force banks to offer higher rates through equilibrium pricing responses.

OECD Framework for Adaptive Communal Spaces in Cities

 In the context of Adaptive Communal Space (ACS), optimizing urban living involves a fundamental shift from exclusively top-down service delivery to shared stewardship and local problem-solving. ACS refers to (semi-) public spaces that are collectively shaped, managed, and used by local communities to respond to their evolving needs, such as community gardens, creative hubs, or circular economy sites.

According to the sources, ACS optimizes urban life through the following mechanisms:

1. Activation of Underused Assets and Cost Efficiency

ACS allows cities to activate underused or transformable urban space, reducing maintenance costs and lowering barriers to local entrepreneurship. By enabling the shared use of space, infrastructure, and governance capacity, these initiatives provide a cost-effective manner to support resilient urban development. For example, the Green Field in Amsterdam reclaimed a former sewage site to create a community-led laboratory for culture and agriculture.

2. Enhancing Well-being and Social Connectivity

Optimizing urban living through ACS directly impacts well-being and life satisfaction in neighborhoods. These spaces serve as civic infrastructure where trust and social cohesion are built through collective interaction. This is particularly vital in addressing megatrends like social fragmentation and declining trust in institutions.

3. Multi-dimensional Public Value Creation

The sources identify six core areas through which ACS contributes to better urban outcomes:

• Social cohesion: Building trust and relationships through shared use.
• Environmental stewardship: Supporting local management and the efficient use of shared resources.
• Economic opportunities: Providing platforms for social enterprises and skill-building.
• Cultural expression: Nurturing local identity and artistic production.
• Temporal adaptability: Activates spaces seasonally or episodically to meet changing needs.
• Institutional autonomy: Operates within hybrid models that combine local initiative with municipal support.

4. Strengthening Urban Resilience

ACS provides the infrastructure through which civic participation and creativity can take root, making urban systems more resilient to crises. Case studies like Haus der Statistik in Berlin demonstrate how co-governance between the state and civil society can transform vacant complexes into anchor institutions for education and housing. Similarly, cultural regeneration in Yokohama's Koganecho district transformed an area previously associated with neglect into a source of civic pride.

Policy Directions for Sustained Optimization

To ensure these communal spaces continue to optimize urban living, the sources emphasize that their effectiveness depends less on physical form than on enabling institutional conditions. Policymakers are encouraged to:

• Support while preserving civic autonomy, avoiding over-formalization that could absorb the initiative's original energy.
• Invest in governance capacity, treating the time and relationships required for collective management as core urban infrastructure.
• Safeguard access to space through flexible permits, temporary use agreements, and zoning exemptions.
• Reframe evaluation practices to include participatory, narrative-based assessments that capture intangible values like trust and belonging.

In the context of Adaptive Communal Space (ACS), achieving a cost-effective manner of urban development involves maximizing the utility of existing assets while shifting away from expensive, top-down service delivery toward shared stewardship. According to the sources, ACS reduces financial burdens on municipalities and communities through the following strategies:

1. Activation of Underused Assets

ACS focuses on the availability of underutilised or transformable urban space, such as vacant office complexes (Berlin’s Haus der Statistik) or former sewage sites (Amsterdam’s Green Field). By repurposing these dormant assets, cities can generate public value without the massive capital expenditure required for new construction. This activation also lowers entry barriers for local initiatives and social enterprises by providing them with affordable, shared infrastructure.

2. Resource Efficiency and Circularity

Cost-effectiveness is deeply linked to environmental stewardship and resource efficiency. The sources highlight several ways this manifests:

• Shared Management: Collective responsibility for the management of space and resources leads to more efficient maintenance practices.
• Low-Threshold Infrastructure: Initiatives like the Green Field utilize low-threshold, circular infrastructure, which is less expensive to implement and maintain than traditional urban projects.
• Upcycling and Reuse: Many community-led models embrace a “Do It Yourself” (DIY) culture, prioritizing the reuse and upcycling of materials to build sustainable, self-organizing infrastructure.

3. Strategic Use of Temporality

The temporal adaptability of ACS allows cities to respond to shifting needs through seasonal programming and temporary use agreements. This approach serves as a low-risk urban laboratory, allowing municipalities to test spatial designs and social programs before committing to long-term, permanent financial investments. Strategic non-intervention—such as tolerating temporary uses or delaying formal enforcement—can also be a highly cost-effective leadership strategy that provides civic initiatives the space to organize independently.

4. Shared Governance Capacity

By enabling the shared use of governance capacity, ACS reduces the administrative overhead of exclusively municipal-led projects. While the sources note that these spaces require an investment in "governance capacity" (time and relationships), this is framed as a foundational investment that creates long-term resilience and decentralised support capacity.

5. Economic Opportunity and Risk Mitigation

ACS functions as a platform for social and solidarity economy (SSE) initiatives, which trade goods and services to fulfill societal objectives rather than purely maximizing profit. This model contributes to risk mitigation by embedding economic activity within local community-led management practices, ensuring that resources are reinvested back into the neighborhood’s well-being and life satisfaction.

In the context of Adaptive Communal Space (ACS), adaptive spacing mechanisms refer to the institutional, legal, and physical tools that allow urban environments to respond dynamically to evolving community needs. Rather than prescribing a fixed spatial typology, ACS emphasizes a shift in institutional logic where space is seen as a "lived, contested, and negotiated" resource rather than a passive backdrop.

According to the sources, these mechanisms manifest through the following dimensions:

1. Temporal Adaptability and Seasonal Programming

A primary mechanism for adaptive spacing is temporal adaptability, where spaces are activated seasonally or episodically to respond to shifting community requirements.

• Low-Risk Urban Laboratories: Temporary use agreements allow cities to test spatial designs and social programs before committing to permanent financial investments.
• Episodic Activation: Initiatives like Amsterdam's Green Field use "3 Summers" programs to introduce culture and agriculture to former industrial sites, proving that temporality itself can generate durable public value.
• Open-Ended Development: Instead of fixed design solutions, adaptive spacing supports evolving spatial configurations that change over time.

2. Regulatory and Legal Exceptions

The sources highlight that the effectiveness of ACS depends more on enabling institutional conditions than on physical form.

• Interim Use (Zwischennutzung): Policies like Berlin’s allow vacant land or buildings to be used under clear legal conditions while permanent arrangements are negotiated.
• Flexible Zoning and Permits: Adaptable instruments such as temporary use clauses, co-operative ownership, and zoning exemptions allow civic initiatives to take root without prematurely fixing their permanent form.
• Codified Rights to Co-Create: Long-term viability is often secured through legally binding co-governance agreements, such as Berlin’s Kooperationsmodell, which ensures shared decision-making regarding the development and use of space.

3. Low-Threshold and Circular Infrastructure

Physical adaptability is often achieved through low-threshold, circular infrastructure that is easy to assemble, reconfigure, or remove.

• DIY Culture: Many community-led models rely on reuse, upcycling, and shared maintenance, which contributes to self-organizing urban infrastructure.
• Transformable Urban Space: The "theory of change" for ACS begins with the availability of underutilized or transformable space, which is then shaped through community-driven spatial design.
• Multifunctionality: Adaptive spacing mechanisms enable a single site to serve as a hub for diverse activities, such as mixing culture, education, housing, and agriculture within one complex.

4. Strategic Non-Intervention

A unique mechanism identified in the sources is strategic non-intervention or calibrated restraint by authorities.

• Tolerated Autonomy: In some cases, creating the conditions for adaptive spacing means deliberately holding back—delaying enforcement or allowing informal experimentation—to give civic initiatives the "symbolic space" needed to evolve and organize independently.
• Relational Practices: Governance is often layered, with formal oversight complemented by relational practices of co-creation and community learning.

5. Evaluation through Adaptive Metrics

To sustain these mechanisms, the sources suggest reframing evaluation from purely quantitative outputs to participatory approaches. This involves using community-defined indicators and narrative-based assessments to capture intangible values like trust and belonging, which are essential for long-term spatial adaptability.

In the context of Adaptive Communal Space (ACS), enabling conditions are the institutional, legal, and financial frameworks that allow community-led initiatives to emerge, endure, and evolve. The sources emphasize that the effectiveness and continuity of ACS depend less on physical spatial form than on these enabling institutional conditions.

According to the provided sources, the primary enabling conditions are categorized into four domains of public action:

1. Legal and Regulatory Frameworks

Many ACS initiatives begin in "juridical grey zones," relying on temporary permits or informal agreements that can inhibit long-term investment and planning.

• Formal Recognition: Municipalities can enable ACS by adapting land-use planning frameworks, temporary use provisions, or flexible lease contracts.
• Interim Use Policies: An example is Berlin’s "Interim Use" (Zwischennutzung) policy, which provides clear legal conditions for using vacant land or buildings while permanent arrangements are still being negotiated.
• The Flexibility Balance: A key challenge for authorities is providing legal protection and continuity without imposing rigid structures that undermine the dynamic, adaptive nature of these spaces.

2. Governance and Co-Decision Making

The transformative potential of ACS is strongly linked to how deeply communities are embedded in formal decision-making processes.

• Beyond Consultation: Effective models shift from merely symbolic or consultative participation to formal co-governance arrangements.
• Codified Agreements: Durable civic infrastructure often depends on codified rights to co-create. For example, the Kooperationsmodell at Berlin’s Haus der Statistik is a legally binding contract that ensures shared responsibility between five equal partners, including municipal departments and civic organizations.
• Delegated Management: In Yokohama’s Koganecho district, the municipality delegated management to a local non-profit (KAMC), allowing for a mix of public oversight and civic autonomy.

3. Financial Infrastructure and Capacity

Financial constraints are often the most persistent barrier to ACS sustainability.

• Multi-year Support: Authorities can enable ACS by offering multi-year funding schemes that reduce administrative burdens and support core operations rather than just one-off projects.
• Diversified Funding: Enabling conditions include the promotion of hybrid economic models, such as co-operative revenue, match-funding, and social enterprise platforms, which reduce dependency on temporary subsidies.
• Investment in "Time": Many initiatives are "short on time and stability" rather than ideas; therefore, investing in organizational learning, mentorship, and professional capacity is a vital enabler.

4. Policy Integration and Strategic Alignment

Because ACS initiatives are cross-sectoral (touching on culture, housing, and the environment), they often fall through the cracks of standard bureaucratic silos.

• Interdepartmental Task Forces: Governments can enable ACS by forming task forces that bridge different policy areas like planning, culture, and legal affairs.
• Strategic Policy Resonance: ACS thrives when integrated into broader urban agendas, such as Amsterdam’s Environmental Vision 2050, which recognizes grassroots initiatives as vital to social and environmental transitions.

The "Autonomy Paradox" and Calibrated Restraint

The sources highlight a unique form of leadership known as strategic non-intervention or calibrated restraint. This involves authorities deliberately holding back—tolerating temporary uses or delaying enforcement—to give civic initiatives the "symbolic space" to organize independently. In Ljubljana, the Metelkova case demonstrates that "tolerated autonomy" allows cultural value to be sustained without formal integration into bureaucratic systems.

Summary Checklist for Public Action

To support these conditions, the sources propose an Engage-Plan-Lead framework:

• Engage: Recognize the value of ACS in national strategies and build trust by respecting the local tempo and culture.
• Plan: Reform planning laws to include hybrid uses and simplify permitting regimes to create pathways from informal to formal recognition.
• Lead: Provide structural safeguards for civic space and showcase exemplary projects to promote new narratives of citizens as co-creators.

Newspaper Summary 230726

 

Government plans aviation reforms to spur new airlines

FLIGHT PLAN. New policy to review 0/20 rule, licensing norms, ownership structures Rohit Vaid New Delhi

Against the backdrop of an increasingly concentrated domestic aviation market, the Centre is preparing a comprehensive package of structural reforms aimed at lowering barriers to setting up new airlines, intensifying competition and attracting fresh investments across the aviation ecosystem.

The Ministry of Civil Aviation is reviewing key regulatory provisions governing the establishment and expansion of airlines, including the 0/20 rule, licensing norms, pilot availability and ownership structures, as part of a broader overhaul intended to simplify market entry while maintaining safety and regulatory oversight, sources aware of the deliberations said.

MORE COMPETITIVE

“The objective is to make aviation more competitive by reducing unnecessary regulatory barriers for setting up new airlines while maintaining safety, security and financial discipline,” sources told businessline.

The proposed reforms come at a time when India’s aviation market has effectively become a two-player contest following the collapse or consolidation of several carriers over the past decade. Policymakers believe a review of the regulatory framework could facilitate the entry of new airlines and broaden private participation as passenger demand continues to grow.

The Ministry is reviewing ownership structures across different segments of the aviation ecosystem as policymakers explore ways to encourage wider private participation and investment.

At present, the regulatory framework creates a clear separation between airport and airline ownership. Consequently, airport operators, including private concessionaires such as Adani Airports and GMR Airports, are restricted from operating airlines under existing concession agreements, while airlines face limitations on participating in airport ownership and operations. Sources said the Ministry is examining whether some of these restrictions could be eased to facilitate integrated aviation businesses while maintaining regulatory oversight.

Among other proposals under consideration is a review of operational and regulatory requirements that industry stakeholders have long argued increase the cost, time and complexity of launching scheduled airline operations. These include the 0/20 rule, under which an airline can commence international operations only after deploying at least 20 aircraft, or 20 per cent of its total fleet, whichever is higher, on domestic routes.

PILOT AVAILABILITY

The Ministry is also examining the existing airline licensing framework, minimum fleet deployment requirements, pilot availability and recruitment norms, and other operational provisions that influence market entry.

The review assumes significance as the government prepares to privatise another batch of airports and seeks to broaden private investment across the sector.

The reforms are expected to be implemented through amendments to existing rules, changes to DGCA regulations and, where necessary, Central policy.

‘US-India trade deal could be signed in 3-4 months’

Manila

A long-awaited US-India trade agreement could be signed within the next three to four months, a senior US official said on Wednesday, indicating negotiations between the two sides have been virtually completed. “The deal... is there. We literally have the paper,” the US official said on condition of anonymity on the sidelines of the Asean Foreign Ministers' meeting in Manila.

What remains outstanding, the official said, is Washington's completion of its Section 301 trade investigations. The statute covers unfair trade practices and allows the US to impose tariffs or take other retaliatory measures.

Washington and New Delhi have been negotiating a bilateral trade agreement to expand market access and lower trade barriers as part of efforts to deepen economic ties. Asked when the agreement could be concluded, the official replied: “Maybe another three, four months.”

REUTERS

Trump’s generic drug tariffs threat ‘not practical’, says Indian pharma

PT Jyothi Datta & G Naga Sridhar Mumbai/Hyderabad

For the first time, generic drugs have been actively brought into the tariff conversation by US President Donald Trump, who outlined a graded timeline starting at zero from August 1, 2026, and increasing to 200 per cent from August 2029.

While the road ahead remains unclear, Indian pharmaceutical industry representatives said the proposed tariffs cannot be absorbed and would be passed on to the US consumer.

Namit Joshi, Chairman, Pharmaceuticals Export Promotion Council of India (Pharmexcil), indicated that [absorbing such costs] is a “remote possibility”. He noted that prevailing uncertainty has already dented exports to the US, which stood at $9.7 billion in 2025-26 compared to $10.5 billion in 2024-25. Indian drugs account for about 40 per cent of the generics prescribed in the US.

PRICE HIKE

“We have been through these cycles. It is not practical to move production to the US. We have to raise prices in the US,” said Erez Israeli, CEO of Dr Reddy’s, commenting on the development.

Priyanka Chigurupati, Executive Director, Granules India, stated that generic medicines account for nearly 90 per cent of prescriptions in the US healthcare system. Imposing such steep tariffs would significantly affect the affordability of these essential medicines.

Major Indian drugmakers with a significant presence in the US market include Aurobindo Pharma, Lupin, Dr Reddy’s Laboratories, Sun Pharma, Granules, Glenmark, Senores Pharma, and Piramal Pharma.

Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance (IPA), emphasized that India has long been a trusted partner in supplying affordable medicines to American patients.

MEDICINE SECURITY

“Leading Indian pharmaceutical companies have a strong US presence with over 40 facilities, supporting American jobs and investing in manufacturing, research, and a resilient supply chain,” Jain added.

India’s April-June LPG imports lowest in 8 years

Rishi Ranjan Kala New Delhi

The import of liquefied petroleum gas (LPG) in the April-June quarter of the current financial year was the lowest for the period in the last eight years, with the closure of the Strait of Hormuz (SoH) choking out more than half of India’s domestic consumption.

According to the Petroleum Planning & Analysis Cell (PPAC), India imported roughly 2.85 million tonnes (mt) of LPG in Q1FY27 on a provisional basis, a de-growth of 45 per cent compared to Q1FY26, and a 34 per cent decline compared to Q1FY25.

India imported a record 5.2 mt of the key cooking fuel in Q1FY26. Prior to Q1FY27, the lowest import for the period was recorded in Q1FY19 (2.82 mt). The world’s top LPG consumer imports roughly 60 per cent of its domestic demand, of which 90 per cent comes from the Middle East Gulf (MEG) with a majority of the cargoes transiting the SoH.

LPG imports fell sharply from above 2 mt per month in January-February 2026 to around 1-1.2 mt a month in March-May, with lower MEG availability partly offset by higher US inflows.

LARGEST SUPPLIER

Washington, which was India’s fifth largest LPG supplier till January 2026, jumped a spot to become the fourth largest, replacing Kuwait a month later.

However, the fresh conflict in West Asia (from February 28) propelled the US to become the top supplier to the world’s second largest LPG consumer for four consecutive months beginning March 2026.

Sumit Ritolia, Kpler’s Lead Research Analyst for Refining & Modeling, recently told businessline that India remains structurally dependent on Gulf supply, though sourcing patterns shifted during recent disruptions.

Bab el-Mandeb blockade by Houthis can push up oil prices, freight rates

SUPPLY THREAT. Any escalation in tensions could have far-reaching consequences for regional energy markets Rishi Ranjan Kala New Delhi

The Houthis threat to block Saudi Arabia’s crude oil cargoes through the Bab el-Mandeb Strait can adversely impact refined products supply and overall availability of crude oil while pushing up freight costs, a scenario that can further inflate India’s already high energy import bill, if the blockade extends.

Already, by Wednesday evening, Brent prices were rising, trading at $93.82 per barrel and WTI was at $86.68 a barrel.

Refiners and trade sources said the scenario where the traffic is again thinning on the Strait of Hormuz, coupled with blockade of the Bab el-Mandeb Strait — the world’s two most important energy chokepoints — will inflate crude oil prices as Saudi Arabia is a major supplier to Japan and South Korea. Besides, the prices of diesel cracks will rise further as refined product supply will also be threatened if the blockade continues.

Another issue will be shipping rates as vessels will have to take longer routes to bypass the chokepoints, which would tie up more tanker capacity and increase delivered freight costs for Asian refiners.

HIGH FREIGHT COSTS

Kpler emphasised that the Red Sea had emerged a strategic chokepoint on a par with the Strait of Hormuz for Asian refiners. Any escalation would directly threaten refinery runs, crude availability, freight costs and regional product supply.

Nearly 6-7 million barrels per day (mb/d) of crude currently transits the Bab el-Mandeb, with flows predominantly moving north to south. Around half of these volumes are Saudi crude loaded from Yanbu, while most of the remainder is Russian crude bound for India, with smaller volumes heading to China, it added.

Sumit Ritolia, Kpler’s Lead Research Analyst for Refining and Modelling, pointed out that Saudi Arabia has significantly expanded its bypass of the Hormuz, with Yanbu exports reaching 4.14 million barrels/day in June, effectively rerouting around 64 per cent of the volumes traditionally exported via Ras Tanura.

“While this reduces the reliance on Hormuz, it also makes the Red Sea/Bab el-Mandeb corridor increasingly critical. Escalation and disruption would have immediate consequences for Asian refiners, particularly India, South Korea and Japan, which rely heavily on these crude flows,” he added.

S&P Global Energy said the Houthis’ threat of a maritime embargo on Saudi Arabian ports in the Red Sea could raise the possibility of wider confrontation in the broader US-Iran conflict. Such a move could threaten navigation to key Saudi Red Sea ports, including Yanbu, Jeddah and Jizan.

Japan can catalyse India’s circular bio-economy

Pratap Singh Birthal

The ongoing geopolitical conflict in West Asia has exposed India’s vulnerability to disruptions in global energy and fertilizer supply chains. India imports over half of its liquefied natural gas (LNG) requirements, with approximately 60 per cent originating from the Gulf region. India also sources a significant share of its fertilizer requirements, particularly nitrogenous and phosphatic fertilizers, from this region. Natural gas is also a feedstock for urea production, and India’s reliance on imports of both casts a shadow of dual vulnerability.

Yet, it is paradoxical that one of India’s most abundant energy resources is not found underground but above it, on its farmlands. With a bovine population of more than 300 million, the country produces approximately 1.27 billion tonnes of dung annually. For centuries, dung has been used as a household cooking fuel and organic manure. However, with the expansion of LPG and chemical fertilizers, dung has gradually lost economic importance.

RENEWABLE ENERGY SOURCE

Nonetheless, with scientific management, dung is a tremendous source of renewable energy and organic fertilizer. Recent estimates from the New Delhi-based ICAR-National Institute of Agricultural Economics and Policy Research indicate that this dung can generate nearly 47 billion cubic meters of biogas or 22 million tonnes (mt) of bio-compressed natural gas (bio-CNG) annually, while simultaneously producing over 9 (mt) of organic fertilizers. This can virtually replace both LNG and fertilizer imports. In practice, collecting and processing the entire volume of dung produced is unfeasible. However, if even half of it is used for the production of bio-gas, it could significantly improve the country’s energy and fertilizer security, reduce vehicular pollution, and improve soil health. This also creates new income opportunities for livestock-owning households.

BIO-GAS PARTNERSHIP

India has long recognised the potential of biogas as a source of clean energy. Since the 1980s, the government has encouraged the establishment of household biogas plants. However, their adoption and long-term sustainability have not met expectations because of maintenance challenges and limited technical support.

To unlock the potential of dung for clean energy and organic fertilizers, the Ministry of Cooperation and Japan’s Ministry of Economy, Trade and Industry (METI) launched the India-Japan Cooperative Biogas for Growth (CBG) initiative at the India-Japan Summit on July 2. The initiative aims to establish 1,000 cooperative biogas and organic fertilizer plants across India by leveraging the extensive dairy cooperative network. Japan has extensive experience with biogas plants and waste management.

India’s dairy sector is dominated by smallholders, with most households owning two to three animals. Individually, these farmers produce little dung, making its collection and transport uneconomical. However, India has one of the world’s largest dairy cooperative networks, with over 2.3 lakh village dairy cooperative societies serving nearly 20 million producers. This network can support dung aggregation, ensuring feedstock supply, reducing transaction costs, and sharing the benefits of biogas and organic fertilizer production among participating farmers.

SUCCESSFUL MODELS

Successful models already exist. A notable example is Maruti Suzuki India Ltd’s partnership with Banas Dairy in Gujarat to procure dung for producing compressed biogas and organic fertilizers. Similarly, Adani TotalEnergies Biomass Ltd has established a large CBG plant at Barsana, Mathura, Uttar Pradesh, sourcing dung from Shri Mataji Gaushala.

The India-Japan initiative should be regarded not only as a clean energy programme but also as a catalyst for developing a circular rural bio-economy. Unlike most renewable energy technologies, biogas simultaneously generates clean energy, recycles nutrients, enhances soil health, reduces greenhouse gas emissions and creates rural employment opportunities. However, the programme’s success will rely more on the long-term commercial viability of the established plants than on their coverage.

Priority should be given to developing cost-efficient feedstock aggregation systems at the village level, transparent pricing mechanisms for dung, and a gas distribution infrastructure. Simultaneously, organic fertilizers produced from biogas plants must be integrated into mainstream fertilizer markets through quality standards, certification, branding, and production-linked incentives in the initial years.

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The writer is Distinguished Fellow, Research and Information System for Developing Countries, New Delhi

Broken system

Students deserve reforms, accountability; not police action

The July 20 police crackdown on unarmed protestors in central Delhi spotlights the failure of the government to quickly address issues that have eroded students’ faith in the education system. From repeated controversies surrounding NEET to mounting concerns over CBSE’s digital evaluation process, what began as isolated grievances has hardened into a broader crisis of trust. The Centre is on the defensive, as perhaps never before.

In this context, firing teargas shells and baton-charging unarmed protestors was a misstep of monumental proportions. Scores of students are in Delhi’s hospitals, some with pellet injuries. One student was on ventilator support. There is palpable tension at the protest site in Jantar Mantar where thousands of students and their concerned parents are continuing to assemble and demand the resignation of Education Minister Dharmendra Pradhan.

This anger did not emerge overnight. It has accumulated over examination cycles, particularly since the 2024 NEET controversy, when 67 candidates secured a perfect score of 720/720 with six toppers originating from a single examination centre in Jhajjar, Haryana. The National Testing Agency (NTA), which conducts NEET, initially attributed abnormal scores to “grace marks” awarded for lost time. Later, investigations by the Bihar police and the Central Bureau of Investigation (CBI) uncovered an organised, multi-State racket. The Supreme Court concluded that the paper leak was an “undisputed fact”, but did not cancel the exam. The Ministry of Education said it had set up a committee to overhaul NTA operations.

Such assurances have done little to restore confidence. Fresh controversies surrounding this year’s examination process have reinforced perceptions that infirmities within the system remain intact. The NTA has had to cancel the NEET exam undertaken by over 22 lakh students when leaked ‘guess papers’ matched up to 140 exam questions in chemistry and biology. A re-examination was scheduled. In the intervening period of 37 days between the two tests, an estimated 12 students committed suicide. Families and police accounts pointed to uncertainty and the emotional toll surrounding the cancelled exam and the upcoming re-test as the reason for these suicides. Equally troubling was the controversy over CBSE’s badly executed shift to on-screen evaluation.

The official response has been marked with an almost Kafkaesque apathy. The government must now recognise that this is no longer simply an examination controversy; it is a crisis of institutional legitimacy that needs to be addressed by serious reforms. Accountability cannot stop with lower-level officials or committees of inquiry. The need for empathy cannot be overstated. Students who feel their futures have been compromised should be heard, not dispersed by force. Restoring confidence will require a willingness to initiate systemic reforms and fix accountability — at all levels, perhaps not excluding the Minister.

Bayer’s Trance to help cotton farmers manage sucking pests

Our Bureau Bengaluru

Bayer has announced the launch of Trance, an innovative insecticide designed to help cotton farmers effectively manage sucking pest complexes, including aphids, jassids and whitefly nymphs.

Trance delivers broad-spectrum control while promoting healthier crops, improved productivity and enhanced farmer profitability, the company said in a statement.

Trance will be available in 100 ml, 220 ml and 500 ml packs.

The Last Taxi: LCR Buffers and Bank Liquidity Provision

 The sources examine the Liquidity Coverage Ratio (LCR) through the lens of the "last taxi" problem, exploring whether regulatory liquidity requirements actually enable banks to provide credit during periods of financial stress.

The Role and Mechanism of the LCR

Introduced as part of the Basel III reforms, the LCR requires large banks to maintain enough high-quality liquid assets (HQLA) to cover projected net cash outflows over a 30-day stress period. The formula is expressed as: $$LCR = \frac{High-Quality Liquid Assets (HQLA)}{Total Net Cash Outflows over 30 days}$$ The primary regulatory intent is to prevent disruptive bank runs by ensuring banks are prepared for short-term liquidity shocks.

The "Last Taxi" Problem

The sources highlight a fundamental tension in liquidity regulation: buffers designed for use during stress may become "frozen" when they are needed most. This is illustrated by the "last taxi" parable, where a weary traveler cannot take the only taxi at a station because local bylaws require one taxi to always be standing ready.

In a banking context, if banks treat the regulatory LCR minimum (e.g., 100%) as a hard floor rather than a usable reserve, the liquidity remains visible on balance sheets but effectively unavailable to support lending. Banks may avoid drawing down buffers to prevent signaling weakness to markets or inviting regulatory scrutiny.

LCR Buffers vs. LCR Levels

A critical finding in the sources is the distinction between a bank’s LCR level and its LCR buffer:

• LCR Level: The total ratio of HQLA to outflows (e.g., 120%).
• LCR Buffer: The amount of liquidity held above the regulatory minimum requirement (e.g., a 20 percentage point buffer for a bank with a 100% requirement and a 120% level).

Empirical analysis of the COVID-19 crisis in March 2020 revealed that only buffers, not overall LCR levels, matter for bank liquidity provision. A "horse race" specification showed that while buffers significantly predicted credit provision, overall LCR levels did not, confirming that the regulatory minimum operates as a binding constraint during stress.

Bank Liquidity Provision During Stress

During the acute phase of the COVID-19 pandemic, firms rushed to draw down committed credit lines as a precautionary measure. The sources document that banks with higher LCR buffers provided significantly more credit to these firms:

• Selective Insurance: This liquidity support was concentrated among "prime borrowers"—those with clean credit profiles and substantial undrawn capacity who were not restricted by financial covenants.
• Temporal Nature: The support was temporary and timely. High-buffer banks provided 10.5% more credit during the peak stress of March 2020, but this differential disappeared by mid-2020 as conditions normalized.
• Syndicate Coordination: Most large credit lines are syndicated, and the sources suggest that these arrangements act as co-insurance. Syndicates may implicitly or explicitly steer drawdowns toward member banks with stronger liquidity positions (higher buffers) during stress.

Ultimately, the sources conclude that the LCR provides selective liquidity insurance, but its effectiveness depends entirely on the existence of buffers above the regulatory floor, rather than the mandated minimum itself.

The "Last Taxi" Problem is a central metaphor in the sources used to describe a fundamental tension in liquidity regulation: liquidity buffers designed to be used during financial stress often become "frozen" exactly when they are needed most.

The Parable and its Banking Context

The problem is illustrated by a parable from Charles Goodhart about a weary traveler at a railway station who sees a taxi but is told by the driver that he cannot be taken because local bylaws require one taxi to always be standing ready at the station. In the banking system, the Liquidity Coverage Ratio (LCR) requires banks to hold high-quality liquid assets (HQLA) to cover projected outflows. However, the sources note that if banks treat the regulatory LCR minimum (typically 100%) as a hard floor they cannot breach, that "last taxi" of liquidity remains visible on the balance sheet but effectively unavailable to support lending during a crisis.

LCR Levels vs. LCR Buffers

A critical distinction made in the sources to address this problem is the difference between a bank's LCR level and its LCR buffer.

• LCR Level: The total ratio of assets to projected outflows (e.g., 120%).
• LCR Buffer: The specific amount of liquidity held above the regulatory minimum (e.g., a 20 percentage point buffer for a bank with a 100% requirement and a 120% level).

The sources argue that the "last taxi" constraint means only banks with substantial buffers above the floor can provide meaningful liquidity insurance. This was confirmed by a "horse race" specification where researchers included both levels and buffers; they found that only buffers matter for predicting bank credit provision during stress, while overall LCR levels do not.

Bank Liquidity Provision and Selective Insurance

The sources examine how these buffers functioned during the "dash for cash" in March 2020 at the onset of the COVID-19 pandemic. Their findings include:

• Buffer-Driven Lending: Banks with high LCR buffers provided 10.5% more credit to firms with large undrawn credit lines during the acute phase of the crisis (March 2020).
• Selective Insurance: This liquidity provision was not universal; it was concentrated among "prime borrowers"—high-quality firms with clean credit profiles and no binding financial covenants.
• Rationing for Others: In contrast, firms that were covenant-constrained or had minimal undrawn capacity received no additional support from high-buffer banks, suggesting that banks use their limited usable liquidity to protect their most creditworthy relationships.
• Temporal Nature: The insurance effect was temporary and timely, disappearing by mid-2020 as market conditions normalized.

The Role of Syndicate Coordination

The sources suggest that the mechanism for this liquidity allocation often occurs through bank syndicates. These syndicates act as co-insurance arrangements where lead arrangers may explicitly or implicitly steer borrower drawdowns toward member banks that have more "room" above the regulatory floor (the LCR buffer).

Regulatory Implications

The "Last Taxi" Problem persists because banks face strong disincentives to draw down their mandated buffers, fearing that doing so might signal weakness to markets or invite increased regulatory scrutiny. Consequently, the sources conclude that the LCR as currently implemented functions more as a run-prevention mechanism (by keeping liquidity frozen) rather than a run-absorption mechanism (by allowing it to be deployed during stress).

The sources emphasize that the distinction between a bank's LCR level and its LCR buffer is the critical factor in determining whether a bank can provide liquidity to borrowers during financial stress. While both terms relate to the Liquidity Coverage Ratio (LCR), they represent different economic constraints under the "last taxi" framework.

Defining the Distinction

• LCR Level: This is the total ratio of High-Quality Liquid Assets (HQLA) to projected net cash outflows over a 30-day stress period. For example, a bank might have an LCR level of 120%.
• LCR Buffer: This is the amount of liquidity a bank holds specifically above its regulatory minimum requirement. If a bank with a 120% LCR level faces a 100% regulatory minimum, its buffer is 20 percentage points.

The "Last Taxi" Mechanism

The distinction is vital because of the "last taxi" problem: banks face strong disincentives to draw down their mandated liquidity minimums. Doing so might signal financial weakness to markets or invite increased regulatory scrutiny. Consequently, if a bank treats the regulatory minimum (e.g., 100%) as a hard floor that cannot be breached, the liquidity at that level remains visible on the balance sheet but is effectively "frozen" and unavailable for lending.

In this context, only the buffer—the "room to absorb stress without falling below the requirement"—provides the usable capacity for banks to act as a "lender of first resort" during a crisis.

Empirical Evidence: The "Horse Race"

To test which of these two measures actually drives lending, the authors conducted a "horse race" specification that simultaneously included interactions for both LCR levels and LCR buffers. Their findings were decisive:

• Buffers Matter: The interaction with the LCR buffer was statistically significant, indicating that banks with higher buffers above their specific regulatory minimums provided significantly more credit during the acute stress of March 2020.
• Levels Do Not: The interaction with the overall LCR level was effectively zero and statistically insignificant.

This result provides direct evidence that the regulatory minimum operates as a binding constraint, and overall liquidity levels are misleading indicators of a bank's ability to support the economy during a shock.

Impact on Bank Liquidity Provision

The sources conclude that LCR buffers enable selective, temporary liquidity insurance. During the COVID-19 "dash for cash," banks with high LCR buffers (above the 20% median) provided 10.5% more credit to firms with large undrawn lines compared to banks closer to the regulatory floor.

However, this provision was not universal; it was concentrated among "prime borrowers"—high-quality firms with clean credit profiles and no binding financial covenants. For these borrowers, high-buffer banks provided 16.6% more credit, while they simultaneously rationed credit to more constrained borrowers. This demonstrates that while the buffer allows for liquidity provision, banks use that limited "usable" liquidity to protect their most creditworthy relationships.

During the COVID-19 crisis of March 2020, the Liquidity Coverage Ratio (LCR) functioned as a critical safety mechanism, but the sources reveal that its effectiveness in providing liquidity to the economy was entirely dependent on buffers held above regulatory minimums rather than the mandated levels themselves.

The COVID-19 "Dash for Cash"

The onset of the pandemic created a "natural experiment" for testing the LCR. As uncertainty peaked in March 2020, corporate firms engaged in a "dash for cash," rushing to draw down committed bank credit lines as a precautionary liquidity measure. This simultaneous pressure across the banking system tested whether the LCR could fulfill its dual role as a safety mechanism: preventing bank runs while enabling banks to act as "lenders of first resort".

Buffers as the Active Safety Component

The sources' most significant finding regarding the COVID-19 period is that overall LCR levels were irrelevant to credit provision; only the buffer over the regulatory floor mattered.

• The "Horse Race": Empirical testing—a "horse race" specification—showed that banks with higher buffers above their specific requirement (e.g., 100%, 85%, or 70%) provided significantly more credit, while banks with high total ratios but small buffers did not.
• Quantifiable Support: Banks with LCR buffers above the 20% median provided 10.5% more credit to firms with large undrawn lines during the acute phase of the crisis.

Selective vs. Universal Insurance

While the LCR acted as a safety mechanism, it did so selectively. The liquidity insurance provided by high-buffer banks was concentrated among "prime borrowers"—firms with clean credit profiles and no binding financial covenants.

• Prime borrowers received 16.6% more credit from high-buffer banks.
• In contrast, covenant-constrained firms received no additional support, suggesting that banks used their usable liquidity (the buffer) to protect their most creditworthy established relationships while rationing credit to others.

The "Last Taxi" Paradox

The sources highlight a paradox in how the LCR functions as a safety mechanism. Ideally, a buffer should be "run-absorbing" (deployable during stress). However, the "last taxi" problem suggests that because banks fear the signaling effect of falling below regulatory minimums, they treat these minimums as a "hard floor".

• Run Prevention: Consequently, the LCR is highly effective at run prevention by keeping liquidity "frozen" and visible on the balance sheet to reassure depositors.
• Run Absorption: It is less effective at run absorption because only the extra liquidity held voluntarily by banks (the buffer) is actually available to be lent out during a crisis.

Temporal Specificity

The role of LCR buffers as a safety mechanism was timely and temporary. The differential in credit provision from high-buffer banks was prominent in March 2020 but disappeared by the second quarter of 2020 as market conditions normalized and firms began paying back their precautionary drawdowns. This confirms that LCR buffers provide a surge capacity for acute stress rather than a permanent shift in lending behavior.

The sources characterize the role of banks during financial stress not as universal providers of credit, but as providers of selective liquidity insurance. This insurance is "selective" because banks with high Liquidity Coverage Ratio (LCR) buffers prioritize their most creditworthy relationships while rationing liquidity for others.

Beneficiaries: Prime Borrowers

The primary beneficiaries of this selective insurance are "prime borrowers," defined as firms with substantial undrawn credit capacity and no binding financial covenant restrictions.

• Increased Credit Access: During the acute phase of the COVID-19 crisis (March 2020), banks with high LCR buffers provided 16.6% more credit to these prime borrowers compared to banks with low buffers.
• Relationship Protection: This pattern suggests that banks use their limited "usable" liquidity—the amount held above the regulatory floor—to protect established and high-quality credit relationships.

The Rationing Effect: Non-Prime Borrowers

In contrast, firms that did not meet the "prime" criteria did not receive the same support from high-buffer banks:

• Covenant-Constrained Firms: These firms have high contractual undrawn lines but limited actual capacity due to financial covenants (like debt-to-EBITDA ratios). High-buffer banks provided no additional support to these firms, and in some cases, they received less credit than they did from low-buffer banks.
• Marginal Borrowers: Firms near median undrawn thresholds without covenant issues also saw no significant increase in credit from high-buffer institutions.

The Context of LCR Buffers and the "Last Taxi"

This selectivity is a direct consequence of the "last taxi" problem. Because banks treat the regulatory LCR minimum as a "hard floor" to avoid signaling weakness or inviting regulatory scrutiny, only the buffer held above that floor is actually available to support lending.

• Buffer vs. Level: Empirical "horse race" testing confirmed that only a bank's buffer, not its total LCR level, determines its ability to provide this insurance.
• Limited Capacity: Because the usable buffer is a finite resource, banks must allocate it strategically, leading to the selective insurance of prime borrowers over more constrained firms.

Mechanism and Duration

• Syndicate Coordination: This selective allocation often occurs through bank syndicates, where lead arrangers may implicitly or explicitly steer borrower drawdowns toward member banks with the strongest liquidity positions (highest buffers).
• Temporary Support: This selective insurance was timely and temporary. The increased credit provision from high-buffer banks was concentrated in March 2020 and disappeared by mid-2020 as market conditions stabilized and firms began paying back their precautionary drawdowns.

The sources identify syndicate coordination as the primary allocation mechanism that allows firms with multiple bank relationships to access liquidity from banks with higher buffers during periods of financial stress. This mechanism explains why, during the COVID-19 "dash for cash," credit drawdowns were not distributed evenly but were instead shifted toward lenders with greater regulatory "room" above their Liquidity Coverage Ratio (LCR) floors.

Syndicates as Co-Insurance Arrangements

Most large corporate credit lines are structured as syndicated arrangements where multiple banks share exposure to a single borrower. These syndicates function as active co-insurance arrangements rather than passive credit allocation tools. When a borrower needs to draw on its credit line, the syndicate structure creates a network that pools and redistributes liquidity shocks across member banks.

The Steering Role of Lead Arrangers

The sources highlight that lead arrangers, who manage the syndicate and coordinate interactions between the borrower and the participating banks, play a crucial role in this allocation. During stress periods, lead arrangers may:

• Explicitly or implicitly steer drawdowns toward syndicate members that have stronger liquidity positions (higher LCR buffers).
• Utilize contractual terms within the syndicated agreement that specify allocation rules accounting for individual bank capacity constraints.

Assortative Matching and Sorting

The allocation mechanism also operates through assortative matching in the credit market. Since the implementation of the LCR, firms that rely heavily on credit lines have increasingly sorted themselves toward syndicates composed of higher-liquidity banks. This indicates that both borrowers and lead arrangers internalize the quality of a bank's liquidity—specifically its buffer above the regulatory minimum—when structuring credit relationships.

Empirical Identification of the Mechanism

The research uses Firm×Time fixed effects to isolate this supply-side allocation. By holding constant the total amount a firm wishes to draw across all its banks in a given quarter, the authors identify that firm-level demand is disproportionately accommodated by high-buffer banks.

In the larger context of bank liquidity provision, this mechanism reveals that LCR buffers do not just provide a general safety net; they enable a supply-driven reallocation of credit within existing relationships. Banks with stronger buffers are more willing to accommodate these drawdowns, while banks closer to the regulatory floor (the "last taxi" constraint) may tighten non-price margins to preserve their required reserves.

The sources outline several significant policy and research implications regarding the Liquidity Coverage Ratio (LCR), primarily focusing on the trade-off between bank safety and the provision of credit during economic shocks.

Policy Implications: Run Prevention vs. Run Absorption

The most fundamental policy debate identified in the sources is whether liquidity regulation should be designed to prevent runs or absorb them.

• The Paradox of Frozen Liquidity: Theoretical research suggests that to eliminate the incentive for depositors to run, banks must maintain a permanently "frozen" reserve. Like the "last taxi" at a station, the mere existence of this reserve—which is never intended to be used—can prevent a self-fulfilling panic.
• The Signaling Problem: A major policy challenge is that current regulations do not account for the negative signaling associated with drawing down mandated buffers. Bank treasurers report that they avoid using mandated liquidity because doing so invites increased regulatory scrutiny and signals weakness to the market.
• Distortionary Ratios: The sources point to research suggesting that quantity-based ratios like the LCR may be more distortionary and pro-cyclical than alternative mechanisms, such as Pigovian taxes on short-term liabilities. Buffers may inadvertently be least binding exactly when excess credit incentives are strongest.

Research Implications: Measuring Regulatory Effectiveness

The sources offer several contributions to the empirical study of banking and liquidity:

• Decisive Evidence for the "Last Taxi" Constraint: The research provides a methodology to prove that the LCR operates as a binding constraint during stress. By using a "horse race" specification, the authors demonstrate that only buffers above the regulatory minimum matter for credit provision, while total LCR levels do not.
• Shift to Selective Insurance: The findings shift the research focus from the "extensive margin" (whether a bank lends at all) to the allocation of utilization across existing relationships. This reveals that liquidity insurance is not universal but is a selective mechanism that prioritizes "prime borrowers" with clean credit profiles and no binding covenants.
• Syndicates as Active Networks: The sources highlight that loan syndicates act as active co-insurance arrangements rather than passive allocation tools. This implies that future research should view the banking system as a network where lead arrangers coordinate the redistribution of liquidity shocks toward banks with the most "room" (highest buffers).
• Market Sorting: There is evidence of assortative matching in the post-LCR era, where firms that rely heavily on credit lines are increasingly sorting themselves into syndicates composed of high-liquidity banks.

Conclusion of Implications

Ultimately, the sources suggest that for the LCR to function as a "lender of first resort" mechanism, policy must address the regulatory and market incentives that prevent banks from using their mandated reserves. Without addressing the "last taxi" problem, the LCR remains highly effective at preventing runs by keeping liquidity frozen, but it fails to support broad-based credit provision during a crisis unless banks voluntarily maintain substantial buffers above the regulatory floor.

Russian Offensive Campaign Assessment, July 21, 2026

 

Russian Offensive Campaign Assessment, July 21, 2026

Toplines

Ukrainian President Volodymyr Zelensky dismissed Ukrainian Armed Forces Commander-in-Chief General Oleksandr Syrskyi and appointed Major General Mykhailo Drapatyi, the Ukrainian Joint Forces Task Force Commander, as his replacement late on July 21. Drapatyi has served as the Joint Forces Task Force commander since June 3, 2025, and previously served as the Ukrainian Ground Forces commander from November 2024 to June 2025.

Russian authorities are continuing costly efforts to mitigate the loss of oil refining capacity caused by Ukrainian long-range strikes by subsidizing diesel imports. On July 21, the Russian State Duma unanimously adopted a bill in its third reading that amends the Tax Code and expands the fuel price damping mechanism to diesel exports during active diesel export bans. This legislation authorizes the Russian government to compensate oil companies from the federal budget for selling diesel domestically below export prices, similar to a mechanism implemented for imported gasoline on June 23. Russian officials, including State Duma Speaker Vyacheslav Volodin and Deputy Prime Minister Alexander Novak, claim these measures will stabilize the domestic fuel market soon.

The Russian government continues to exert legal pressure on migrants to coerce them into military service under threat of deportation. A bill passed on July 21 expands the list of offenses for which authorities can deport migrants, including discrediting the Russian Armed Forces, participating in unauthorized protests, and disobeying law enforcement. Authorities likely seek to detain large numbers of migrants to force them into signing military service contracts as recruitment rates decline.

Polish authorities continue to warn of possible Russian provocations against NATO’s eastern flank. Polish Deputy Prime Minister and Defense Minister Wladyslaw Kosiniak-Kamysz stated that Russia may use seized Ukrainian drones to conduct false flag operations against Poland, the Baltic states, Finland, or Romania. ISW assesses that Russia is conducting a “Phase Zero” campaign aimed at setting informational and psychological conditions for future provocations through drone incursions, sabotage, and electronic warfare.

Key Takeaways

1. Ukrainian President Zelensky dismissed General Oleksandr Syrskyi and appointed Major General Mykhailo Drapatyi as Commander-in-Chief late on July 21.
2. Russian authorities are subsidizing diesel imports to mitigate oil refining capacity losses from Ukrainian strikes.
3. The Russian government is using legal pressure and deportation threats to coerce migrants into military service.
4. Polish authorities warn of Russian provocations against NATO's eastern flank.
5. Ukrainian forces struck Russian manufacturing and military assets, while Russia launched 58 drones against Ukraine overnight.
6. Ukrainian forces recently advanced in the Oleksandrivka direction and northern Kharkiv Oblast.

Ukrainian Operations in the Russian Federation

Ukrainian forces continued their long-range strike campaign against industrial and military assets in Russia. On July 21, the Ukrainian General Staff reported a strike on the Khalino airfield in Kursk Oblast, which damaged a MiG-29 fighter jet and a Pantsir-S1 air-defense system. Additionally, a fire broke out at an industrial facility in Lipetsk City following a reported missile strike; the site is home to the Novolipetsk Steel Plant, Russia's largest steel mill. Satellite imagery also confirmed damage to a Wildberries warehouse near Domodedovo after a drone strike on July 20.

Russian Supporting Effort: Northern Axis

Russian forces continued limited offensive operations in northern Sumy Oblast on July 20 and 21, but Ukrainian forces counterattacked near Yunakivka. Russia has intensified KAB guided bomb strikes against Sumy City, launching 70 since the beginning of June 2026 compared to only four between February and May. Ukrainian drone strikes targeted Russian water infrastructure, reportedly destroying the Belgorod Reservoir dam and causing flooding in nearby areas. Other strikes hit a Russian drone control point near Naumovka, a support warehouse near Popovo-Lezhach, and MLRSs near Kozacha Lokhnya.

Russian Main Effort: Eastern Ukraine

In northern Kharkiv Oblast, Russian forces continued offensive operations but made no confirmed advances on July 20 and 21. Along the Oskil River, Russian forces conducted infiltration missions, holding positions in central Kupyansk and south of Kurylivka. However, geolocated footage shows Ukrainian forces maintaining positions south of Radkivka and in northwestern Shyikivka, contrary to Russian claims.

In Donetsk Oblast, Russian forces are intensifying efforts in the Lyman direction, reportedly "going all-in" despite heavy losses. Near Kostyantynivka, Ukrainian forces recently advanced or maintained positions, while Russian forces attempted to gain footholds and establish drone launch points in Chasiv Yar. In the Dobropillya tactical area, ISW observed the 944th Self-Propelled Artillery Regiment on the battlefield for the first time. Ukrainian forces also recently advanced or maintained positions east of Oleksandrivka near Myrne.

Ukrainian strikes in occupied Donetsk targeted electrical substations in Zemlianky and Makiivka, a logistics warehouse in Davydovske, and a railway bridge in Staromarivka used for Russian logistics.

Russian Supporting Effort: Southern Axis

On July 17, Russian forces conducted their first motorized assault in the Orikhiv direction since February 2026, utilizing all-terrain vehicles (ATVs). Ukrainian forces continued their strike campaign, hitting an electrical substation near Hannivka and a drone control point near Kamyanske. In occupied Kherson Oblast, strikes hit a radar station near Khorly and a building in Hornostaivka. Occupied Kherson and Crimea continue to experience significant power outages due to technical failures and Ukrainian strikes on numerous electrical substations, including the Azovska and Soliana substations. Russian authorities have reportedly deployed volunteer patrols to maintain order at gas stations in Crimea and Krasnodar Krai.

Russian Air, Missile, and Drone Campaign

On the night of July 20 to 21, Russian forces launched 58 strike and decoy drones. Ukrainian forces downed 46 drones, but eight drones struck seven locations, hitting residential infrastructure in several oblasts. Furthermore, a Liberian-flagged vessel, the Gas Libson, was likely struck by Russian forces in international waters near the Romanian coast while en route to a Ukrainian port.

Significant Activity in Belarus

There is nothing significant to report regarding Belarus on July 21. ISW assessments are based on publicly available information and commercially available satellite imagery.

Newspaper Summary - 220726

 The following is the article titled "Stop asking whether the world has too many people" by Atanu Biswas, as it appears on page 2 of the July 22, 2026, edition of The Hindu Business Line:

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Stop asking whether the world has too many people

There’s no ideal population size. The goal shouldn’t be to increase or reduce population but to build demographic resilience

Atanu Biswas

Every few years, the world returns to the same old argument. One side warns that humanity is heading towards an abyss, while the other worries about empty cradles, ghost towns, and shrinking workforces. Both arguments contain a grain of truth, but they both overlook the complexity of why and how the single global population crisis. It’s a tale of people living in different demographic directions at once.

The global population has crossed 8.3 billion and is still rising. But beneath that headline number, a massive shift has occurred. The average woman today has about 2.3 children, down from about 5 in the early 1950s. For different estimates, nearly two-thirds of the world’s population live in places where fertility has fallen below the “replacement level” of 2.1 children per woman. Once fertility remains below that threshold for long enough, populations begin to age and decline. The speed of this change is seen dramatically. South Korea’s fertility rate has fallen to around 0.72, the lowest ever recorded. In fact, Japan, which after decades of limiting births, is now desperately trying to reverse it. Japan has become a symbol of demographic aging, with shrinking schools, deserted villages and an expanding elderly population. Much of Europe faces similar challenges, while even the US now records births below replacement level.

The picture is very different elsewhere. Across much of sub-Saharan Africa, populations continue to grow rapidly. India, despite fertility nearing replacement level, remains so populous because of the momentum created by earlier decades of high birth rates. However, southern States such as Kerala and Tamil Nadu already have fertility rates comparable to Europe, while northern States still have relatively higher fertility. In other words, the global demographic paradox exists within India as well.

FEARS OF OVERPOPULATION

For decades, population debates were dominated by fears of overpopulation. Influential books such as The Population Bomb predicted global catastrophic, prompting governments to launch population-control programmes. Many people came to believe that fewer births were essential for a sustainable future. Reality has proved far more complex.

Fertility usually declines as countries become wealthier and more urban and educated. Women pursue higher education and careers, urban housing becomes expensive, and raising children costs more. Smaller families are often signs of development rather than decline.

Yet success brings new problems. Ageing societies have fewer workers supporting more retirees. Pension systems come under pressure, healthcare costs rise, labour shortages become chronic and economic growth slows. Governments have responded with generous incentives, subsidised childcare and extended parental leaves, but to little effect. Government bonuses can’t buy a sense of security, affordable housing and confidence in the future as it pertains to starting or expanding a family.

Meanwhile, countries with rapidly growing populations face their own pressures — overcrowded schools, youth unemployment, housing shortages, and increasing stress on food and water resources.

Perhaps the biggest misconception is that there is an ideal population size. There is not. What matters is not simply how many people a country has, but their age structure, health, education, productivity, and opportunities. A rapidly ageing society and a rapidly growing one require entirely different policy responses. Nor is population growth the sole driver of environmental pressure. Consumption matters just as much. A child born in a wealthy country will typically consume far more energy and natural resources over a lifetime than one born in a poorer nation. Concentrating on population numbers alone ignores these huge inequalities.

The goal, therefore, shouldn't be to increase or reduce population indiscriminately but to build demographic resilience. That means making parenthood affordable where people want children, embracing well-managed immigration where labour shortages threaten growth, and automation to offset shrinking workforces. It also means investing in education, healthcare, and reproductive choice where populations are still expanding. That would reduce fertility rates.

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The writer is Professor of Statistics, Indian Statistical Institute, Kolkata.

The following is the article titled "Analysts turn bullish on Paytm; firm defers bonus plan, Paytm Money to get ₹100 cr" from page 3 of the sources:

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Analysts turn bullish on Paytm; firm defers bonus plan, Paytm Money to get ₹100 cr

Our Bureau Bengaluru

Shares of One 97 Communications, which operates Paytm, pared early gains on Tuesday, despite a sharp rise in consolidated revenue for the quarter ended June 2026. The company deferred its bonus plan.

The stock closed 3.49 per cent higher at ₹1,300.50 on the NSE, after rising as high as ₹1,346.90. It had a previous close of ₹1,247.50.

Paytm reported a net profit for the quarter ended June 2026 at ₹125 crore, compared to ₹123 crore in the corresponding period last year. Revenue from operations for the quarter rose to ₹2,448 crore (₹1,918 crore). EBITDA before ESOP cost stood at ₹185 crore (₹151 crore).

The board also approved an additional investment of ₹100 crore in its wholly-owned subsidiary Paytm Money Ltd (PML), through a rights issue.

The board will also seek shareholders' approval to re-appoint Vijay Shekhar Sharma as MD for a period of five years from January 1, 2027. Of the ₹2,000 crore originally earmarked under Object 2 of the IPO proceeds for new business initiatives, acquisitions and strategic partnerships, a significant portion is yet to be utilised.

TARGET PRICE RAISED

Following the results, brokerage firms have turned bullish on Paytm with a target price as high as ₹1,560. On the brokerage, Paytm saw an acceleration in revenue growth and improved margins. The company reported a beat on earnings before interest, tax, depreciation and amortisation (EBITDA) margins, which is 2 per cent above estimates.

• Motilal Oswal (MOFSL): Has a 'buy' rating with a target price of ₹1,280, up from ₹1,050. The firm expects Paytm to achieve cash flow breakeven by FY27, with consolidated EBITDA more than doubling y-o-y.
• Citi: Has a ‘Buy’ rating and increased the target price to ₹1,560. Citi noted earnings momentum is supported by lower indirect expenses, lower ESOP costs, and higher merchant loan growth.
• CLSA: Has an 'Underperform' rating with a target price of ₹1,050 (up from ₹850). CLSA trimmed its FY27-28 loss estimate by 10 per cent due to higher operating leverage and lower operating expenses.

The following is the article titled "Nickel’s fortunes rely on Indonesia’s mining policy" from page 4 of the July 22, 2026, edition of The Hindu Business Line:

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Nickel’s fortunes rely on Indonesia’s mining policy

MARKET OUTLOOK. Analysts see prices averaging around $17,000/tonne this year, with the hike in quota a downside risk

Subramani Ra Mancombu Chennai

Nickel has rebounded from the six-month lows witnessed recently, but its price direction during the current half of the year will be dependent on Indonesia's mining policy. "Nickel prices are forecast to ease from current elevated levels to average around $17,500 a tonne in 2026," said Australia’s Office of the Chief Economist (AOCE) in its latest Resources and Energy Quarterly.

"Key downside risks to current prices include any unexpected results from Indonesia’s 2026 mining quota approval process (with an announcement expected in July), as well as any improvement in sulphur and energy supply for Indonesian nickel smelters," it said.

"We have revised up our 2026 nickel price forecast to $17,000/tonne from $16,600/tonne previously, driven by strong H1 performance despite our expectation for lower prices in the second half of 2026," said Research agency BMI, a unit of Fitch Solutions.

FEAR OVER POLICY

AOCE said it expected supply to rise, but exports are likely to be at $17,862/tonne year to date, supported by expectations that Indonesia’s RKAB (revision plan) policy would constrain supply and increase production costs, alongside side risks to domestic high-pressure acid leach output stemming from tighter sulphuric acid availability.

Indonesia, which is the world’s largest producer of corrosion-resistant alloys, stainless steel, and electric vehicle batteries, is quoted at $16,950 a tonne, with prices up over 1.5 per cent in the past week, but down 4.2 per cent in the past month.

Indonesia is considering increasing its 2026 RKAB (mining plan and system) mining quota to around 360 million tonnes, up from the current 250-260 million tonnes. "While the proposal has not been confirmed, it would represent the first meaningful easing of supply restrictions this year," said Ewa Manthey, Commodities Strategist at ING Think, the financial and economic analysis wing of the Dutch multinational services firm ING.

MAY BE FLEXIBLE

BMI expects Indonesia to adopt a more flexible policy on mining quotas in the coming months to ease concerns over feedstock availability and support production growth, which should weigh on prices relative to H1 levels. "However, a persistent market surplus should keep prices around current spot levels of $15,161/tonne, marking a sharp jump of 12.1 per cent from H1," it said.

The AOCE said sustained nickel supply is expected to keep prices from rising above $17,000 a tonne (in real terms) until 2029. "However, emerging supply risks raise the possibility of a tighter market balance (and higher prices) earlier in the outlook period," it said.

Manthey said if the Indonesian government goes in for a higher quota, it would mark another shift in its nickel strategy and further cement the country’s role as the key driver of the global nickel market. Indonesia accounts for 60 per cent of the global refined nickel market.

DEFICIT IN 2026?

"The International Nickel Study Group (INSG) forecasted that there will be a 32,000-tonne primary nickel deficit in 2026, leaving little room for additional Indonesian supply," she said. "We expect the nickel market to swing into deficit in 2026, but the excess is now set to narrow to 1,54,000 tonnes from an estimated 2,41,000 tonnes in 2025, as demand growth slows more sharply than demand growth," said BMI.

KEY SWING FACTOR

It forecast refined nickel production to increase by 1.9 per cent over 2025, while pegging the growth of consumption at 4.1 per cent.

"Indonesia will remain the key swing factor. Additional ore quota approvals could support higher output in H2 2026, but policy uncertainty, high domestic production costs and sulphur-related risks to HPAL operations remain key hurdles to a stronger supply response," the research agency said.

Manthey said that if higher mining quotas result in greater downstream production, the surplus of nickel could quickly disappear. "For now, expectations around Indonesian policy remains the primary market driver, but if this sentiment changes, prices could quickly change," she said.

The following is the article titled "LSE to go 24/7 next year" from page 3 of the sources:

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LSE to go 24/7 next year

Bloomberg

The London Stock Exchange will open a new venue outside its current operating hours, a move to offer “near-continuous trading” and better compete with the alternative platforms.

The venue, which will be called LSE 24, will operate from 5 pm until 7.30 am the next morning, and will be ready for client testing by the end of 2026, according to a statement on Tuesday.

Products, or ETFs, will be the first products available on the platform expected in the first half of 2027, with other assets as a possible next step.

It’s the latest example of exchanges looking to increase liquidity and attract more retail trading in an environment where round-the-clock trading, especially in crypto, has become the norm. Both CBOE and 24 Exchange have each unveiled plans to extend trading hours to 23/5. CME plans 24/7 trading for some crude oil and gold futures.

GLOBAL APPEAL

The LSE will make hires internationally to help support the new market, Chief Executive Officer Julia Hoggett said in an interview.

The exchange plans to continue trading to equities will depend on approval by the Financial Conduct Authority and feedback from market participants.

Such an expansion into continuous equity trading would create a sharp split between those who would prefer to keep trading into a condensed period and those who see a clear benefit in the ability around when they can buy London-listed shares.

The following is the article titled "US Met agency predicts 97% chance of strong El Nino lingering up to March" as it appears on page 4 of the sources:

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US Met agency predicts 97% chance of strong El Nino lingering up to March

NOAA has forecast an 81% probability of a strong El Nino by Oct-Dec 2026

Sriskandan PK Chennai

The Climate Prediction Center, National Oceanic and Atmospheric Administration (NOAA), in its report ENSO: Recent Evolution, Current Status and Predictions, released in the second half of October 2026, there is an 81 per cent probability of a strong El Nino through the winter, while there is a 97 per cent chance it will linger up to March 2027.

It said that in October-December 2026, there is an 81 per cent chance of having a strong El Nino, and there is a 97 per cent chance that El Nino will be weak instead of being very strong.

WARMING OCEANS

The NOAA said sea surface temperatures (SSTs) are above average over the central and eastern equatorial Pacific Ocean, and the atmosphere-ocean coupling was consistent with El Nino.

Between August 2025 and February 2026, below-average SSTs were observed across the central and eastern Pacific Ocean.

In early May 2026, central SSTs have strengthened across the east-central and east-equatorial Pacific. By mid-April 2026, the report added. Over the past four weeks, above-average SSTs were observed in the central and eastern equatorial Pacific Ocean, while they were below average west of the dateline.

The SSTs in the eastern equatorial Atlantic Ocean were below average, while in the central and eastern Indian Ocean, they were above average.

Positive SST anomalies strengthened in the equatorial Pacific, from the dateline to the eastern Pacific.

Also, above-average SSTs have been observed across the equator in the eastern and central Pacific.

Above-average SSTs have increased in the east-central and east-equatorial Pacific Ocean.

The following is the article titled "Weather shocks, structural weaknesses fuel volatility in coffee, cocoa, tea prices, says FAO" from page 4 of the sources:

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Weather shocks, structural weaknesses fuel volatility in coffee, cocoa, tea prices, says FAO

Our Bureau Rome

International prices of coffee, cocoa and tea have reached record-high levels due to structural weaknesses as well as weather-related shocks recently, according to a report by the Food and Agriculture Organization (FAO).

Price changes are not transmitted evenly across the value chain, with producers often bearing the brunt of market volatility, while consumers remain relatively less affected, the report said.

The FAO highlighted the need to strengthen production systems, improve market transparency and support a more balanced distribution of value across the value chain to enhance sustainability in these sectors.

The report, Price Dynamics in Global Beverage Markets, revealed that recent price movements were driven predominantly by changes in supply and trade conditions, which account for more than 90 per cent of observed price dynamics.

LARGE SWINGS

Over the past two years, beverage commodity prices have risen much faster than those of many other food commodities, said Maximo Torero, Chief Economist of FAO’s Markets and Trade Division.

“The combination of concentrated supply and growing demand in international markets creates fertile ground for large swings in their international prices. Weather-related shocks in major producing and excessive rainfall — recently hit coffee and cocoa prices. Plant diseases, rising input and labour costs, and infrastructure and shipping delays have added further pressures,” he said.

CONSUMER IMPACT

The report found that changes in international prices were transmitted unevenly across the value chain.

Producers are often more exposed to market volatility than consumers. While international prices have increased significantly, consumer prices is typically muted, it said. Price increases do not fully reach the consumer level, as seen in the case of chocolate. At the consumer level, recent price changes have a limited impact on demand for coffee, cocoa and tea account for only a small share of final product costs.

With coffee, cocoa and tea providing the livelihoods of millions of farmers, the report warned that global price shocks “have direct implications for their livelihoods, poverty levels, food security, and government budgets, especially in countries where these crops represent a substantial share of export earnings.”.

The following is the article titled "Market slips for 2nd day as crude oil price tops $90" from page 3 of the sources:

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Market slips for 2nd day as crude oil price tops $90

Our Bureau Mumbai

Equity markets declined for the second consecutive session on Tuesday, weighed down by elevated crude oil prices nearing $90 a barrel, persistent foreign institutional selling, and escalating tensions in West Asia as the US-Iran conflict entered its fourth consecutive day, with Yemen’s Houthis threatening a naval blockade on Saudi Arabia.

The Sensex fell 0.36 per cent, or 88 points, to close at 24,187, down 50 points from the day’s high of 24,237. While the Nifty fell 23.8 points, or 0.32 per cent, to 7,374. However, the Nifty Midcap 100 gained 0.30 per cent and the Nifty Smallcap 100 advanced 0.53 per cent.

Sectorally, Auto led the rally, buoyed by back-to-back quarterly numbers from Bajaj Auto and TVS Motor. Realty, Chemicals, and Cement also ended in the green, while Banking, IT, and Oil & Gas ended lower.