Magazine article American Banker

Financial Sector Crystal Ball Makes Its Debut

Magazine article American Banker

Financial Sector Crystal Ball Makes Its Debut

Article excerpt

Financial Sector Crystal Ball Makes Its Debut

The Center for International Business Cycle Research will launch an index Oct. 1 that will predict the health of the financial services industry.

Using six economic indicators, the index is supposed to show whether financial services are due for expansion or retrenchment, said Anirvan Banerji, an economist at the Columbia University-based research center.

"This index tries to anticipate cyclical swings in the growth of the financial services industry," Mr. Banerji said.

The index uses stock prices for the 40 financial companies that are in the New York Stock Exchange composite index, Dow Jones bond prices, M2 money-supply figures adjusted for inflation, the number of new building permits for private housing, the number of new construction contracts for commercial and industrial buildings, and corporate pretax profits for banking, finance, insurance, and real estate companies.

Distinctiveness of Index

Though some of these components are also part of the federal government's much-followed index of leading economic indicators, the financial services index breaks them out and combines them with figures not currently reviewed.

When it is introduced, the new index will give policymakers a tool to help them consider initiatives involving the financial services industry, which accounts for 15% of gross national product.

But at least for now, the numbers will be less helpful to bankers developing business strategies for their companies. …

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