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A new proposal by the Basel Committee on Banking Supervision for setting the amount of capital banks must hold against potential losses from interest rate risk uses only a few, very stylized scenarios. Analysis shows the proposed scenarios are extremely unlikely to occur. While they may be appropriate for setting bank capital guidelines, they are much less relevant for everyday risk management. Instead, using a modeling framework with a plausible range of interest rate scenarios would be more relevant to help banks manage their interest rate risk. [ABSTRACT FROM AUTHOR]

The article reports that while nearly a quarter of the homes bought in the United States in 2004 were investments, not residences, real estate is generally a poor way of generating return on investment. A chart created by economist Robert Shiller suggests that people overestimate returns on home purchases. From 1890 to 2004 real home values rose by an average of only 0.4 percent a year. The chart also shows that the current boom is almost unprecedented historically.

The author offers opinions on international finance and international economic relations. It is argued that although there are risks for economic development in the situation in 2012 in which interest rates offer a negative rate of return, central banks have no alternative but to maintain extremely low interest rates due to the ongoing weakness in the economies of many countries.