Financial Update For Oct. 26, 2009

• TSX -151.24 to 11.382(Reuters) in a broad-based decline involving all sectors and led by falling tech and energy shares.

• DOW -109.13 bringing the DOW back under 10,000 pts to 9,972 There was no particular reason for the negative investor sentiment

• Dollar -.37c to 95.07 sank further against the greenback as warnings from the BoC that the currency's strength was a risk to economic growth weighed on investor sentiment.

• Oil -$.69 to $89.59US per barrel.

• Gold -$2.20 to $1,055.600USD per ounce

Study says variable-rate mortgages better deal for borrowers most times

The Canadian Press

TORONTO - Fixed mortgage rates may help you feel secure in your budgeting, but the Bank of Montreal (TSX:BMO) says the more volatile variable rate mortgages will save you money in the long run.

The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time.

That may come as a surprise to some after studies have shown many Canadians prefer a fixed-rate mortgage.

A fixed rate locks the borrower into a set interest rate for a certain period of time.

That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.

Variable rates change along with interest-rate moves.

U.K. economy shrinks unexpectedly

The latest GDP report out of Britain says the economy there shrank in the third quarter, surprising many economists. European correspondent Stephen Beard talks with Steve Chiotakis, co-host of the Marketplace Morning Report, a British national business program, about what's behind the numbers.

Steve Chiotakis: In Great Britain today, there's a lot of head scratching over the latest Gross Domestic Product report. The economy there shrank in the third quarter of the year. Many economists had thought the GDP would rise, officially putting an end to the recession. Marketplace London correspondent Stephen Beard is with us live to talk about the reaction to the number. Good morning, Stephen.

Stephen Beard: Good morning, Steve.

Chiotakis: Stephen, how bad are these numbers and what's behind them?

Beard: Britain's GDP fell by four-tenths of 1 percent in the third quarter.And this is an historically bad figure. It's the first time in more than half a century that the U.K. economy has contracted for six quarters in a row. What's behind it? A sharp decline in the services sector -- catering, hotels, distribution all performed badly. And more generally, consumer spending has softened. There was no growth at all in retail sales in November.

Chiotakis: And why, Stephen, did this report come as such a surprise?

Beard: Well because there have been some tentative signs of recovery over the third quarter. And more positive signs for the global economy. Also, the British government and the Bank of England have thrown so much at this economy, people were really expecting more signs of life. I mean, we've had a one-trillion pound bailout of the banks, a cut in sales tax, a big and quite successful car-scrappage scheme, and short-term interest rates of half a percent. So people thought, really, the economy had to have at least crawled back into positive territory after all that. The currency markets reacted quite badly to this, Steve. The pound fell a cent against a weak dollar on the news. Currency traders seem generally concerned that the U.K. may turn out to be the only major economy still in recession.

Chiotakis: Yeah, we're going to see about that when we get the first look at U.S. third-quarter GDP next Thursday

Bernanke prods Congress for financial overhaul to prevent future crises

By Jeannine Aversa Associated Press

WASHINGTON — Federal Reserve Chair Ben Bernanke prodded Congress Friday to enact legislation overhauling the U.S. financial regulatory system to prevent a repeat of the banking and credit debacles that thrust the country into crisis.

“With the financial turmoil abating, now is the time for policy-makers to take action to reduce the probability and severity of any future crises,” Bernanke said in remarks to a Fed conference in Chatham, Mass.

For its part, the Fed has been taking steps to strengthen oversight of banks, sharpen consumer protections and on Thursday unveiled a sweeping proposal to police banks’ pay policies to make sure they don’t encourage top executives and other employees to take reckless gambles.

But Congress needs to step in and close regulatory gaps and make other changes that only lawmakers have the power to do, Bernanke said.

At the top of his list: Congress must set up a mechanism — along the lines of what the Federal Deposit Insurance Corp. does with troubled banks — to safely wind down big financial firms whose failure could endanger the entire system.

And the costs for such a mechanism should be paid through an assessment on the financial industry, not by taxpayers, Bernanke said.

Moreover, Congress needs to set up better systems for regulators to monitor risks lurking in the financial system, he said.

The Obama administration has proposed such action as part of its overhaul of financial rules. Its plan would expand the Fed’s powers over big financial institutions but reduce it over consumers. Congress, however, is leery of expanding the Fed’s reach because it and other regulators failed to crack down on problems that led to the crisis.

The House is expected to pass legislation by the end of the year, but the Senate is unlikely to consider the bill until early next year.

A House panel on Thursday approved a piece of the plan, creating a federal agency devoted to protecting consumers from predatory lending, abusive overdraft fees and unfair rate hikes. Doing so, however, strips some powers from the Fed.

Bernanke, in his remarks Friday, talked about the central bank’s efforts to bolster consumers protections.

He also said the Fed is working on rules to better safeguard consumers from abuses when it comes to overdraft protection, reverse mortgages and gift cards.

But he didn’t get into a public debate over whether the Fed — or a new consumer agency — is best equipped to do the job.

To beef up banking supervision, Bernanke again said regulators are considering assessing a capital surcharge on big financial companies or requiring that a greater share of their capital be common equity. The Fed also supports efforts for banks to build larger capital buffers in good times and allow them to be drawn down in bad times.

Forceful actions taken by the Fed and the government helped avert a global financial crisis last fall and since then financial conditions have “improved considerably,” he said.

But the fallout from the crisis has been severe, reflected in deep drops in economic activity and heavy job losses both in the U.S. and overseas, he said.

The Fed chief didn’t talk about the future course of interest rates in his speech or in a brief question-and-answer session afterward.

To nurture the budding recovery, the Fed is expected to keep a key bank lending rate near zero when it meets in early November. Analysts predict rates will stay at record-low levels into part of next year.