With active capital of $186 million as of September 30, 2007, Bank Mellat has three branches in Turkey.

Washington has called on Turkey’s Financial Investigation Board to scrutinize activities by Iranian state-owned Bank Mellat in Turkey, accusing the bank of bankrolling terrorism.
The Turkish government, however, wants to make an inquiry before taking any action against the bank, according to a source who spoke on condition of anonymity, reported Todayszaman.com.
Bank Mellat, among the banks that US Treasury Secretary Henry Paulson has accused of bankrolling terror, has been operating in Turkey since 1982. With active capital of $186 million as of September 30, 2007, the bank has three branches in Turkey.
Iran has recently been the main topic causing tension between the US and Turkey. An energy agreement signed by the Turkish government and Tehran just before Turkey’s July 22 elections caused a serious disturbance with Washington at the time.
The fact that Turkey pursues an independent foreign policy and has established close relations with Iran in order to be more effective in the Middle East region has displeased the US, which has been calling for illegal sanctions by the international community on Iran. Thus, the Bush administration’s request has increased the pressure on Turkey and was seen as problematic by Ankara.
The topic was once again brought to the agenda during a visit by US Treasury Undersecretary for Terrorism and Financial Intelligence Stuart A. Levey on Monday.
Levey called on the Turkish financial sector to be on the alert about Iranian banks, which he accuses of supporting terrorism and Iran’s civilian nuclear program, adding that Turkey should take measures against Bank Mellat.
Speaking to the press at the US Embassy in Ankara, Levey underlined that the US has been imposing sanctions on Iran’s three major state-owned banks--Bank Mellat, Bank Melli and Bank Saderat--since September of last year.
Saying that he had presented intelligence on the banks in question to the Turkish government, Levey claimed, “I am here to make sure that Turkey’s financial institutions are not abused by Iranian banks and urge Turkey to be alert.“
Levey also claimed that he provided the information and the experiences of other countries on this subject, saying, “It is up to Turkey to decide what to do about Bank Mellat.“

Buffeted by recent financial market turbulence and a weakening US performance, world growth is projected to slow to 4.1 percent in 2008, down from an estimated 4.9 percent last year, the IMF said in its quarterly update for the global economy.

Growing Risks
While projecting growth of above four percent for the global economy, the IMF said there was a risk that the ongoing turmoil in financial markets would further reduce domestic demand in the advanced economies with more significant spillovers into emerging market and developing countries.
“Growth in emerging market countries that are heavily dependent on capital inflows could be particularly affected, while the strong momentum of domestic demand in some emerging market countries provides upside potential,“ the World Economic Outlook Update said.
The IMF made the following comments and projections for key areas of the global economy:

United States
Economic growth in the United States appears to have slowed notably in the fourth quarter of 2007, with recent indicators showing weakening of manufacturing and housing sector activity, employment, and consumption.
US growth is projected by the IMF to slow to 1.5 percent this year, down from 2.2 percent last year, but the update points out that this number for 2008 reflects the carryover from 2007. Projections on a quarterly basis (Q4-Q4) give a better sense of the slowing growth momentum. On this basis, growth is projected at 0.8 percent in the fourth quarter of 2008, compared with 2.6 percent during the same period of 2007.

Western Europe
Growth has also slowed in western Europe and confidence indicators have generally deteriorated. For the euro area, growth on an annual basis is projected at 1.6 percent in 2008, down from 2.6 percent last year. On a Q4-Q4 basis, growth is projected at 1.3 percent, compared with 2.3 percent in 2007.

Japan
Japanese growth has been dampened by a tightening in building standards, while consumer and business sentiment have weakened. Japan’s growth is forecast on an annual basis at 1.5 percent in 2008, down from 1.9 percent last year, although on a Q4-Q4 basis growth is forecast to improve somewhat to 1.6 percent from 1.2 percent in the fourth quarter of 2007.

Emerging Markets
Despite some slowing of export growth, emerging markets and developing countries have thus far continued to expand strongly, led by China and India. These countries have benefited from the strong momentum of domestic demand, more disciplined macroeconomic policy frameworks, and in the case of commodity exporters, from high food and energy prices.
Growth in emerging market and developing countries is also expected to ease, moderating from 7.8 percent (annual basis) in 2007 to 6.9 percent in 2008. In China, growth is projected to decelerate from 11.4 percent to 10 percent, which should help alleviate overheating concerns. But growth in Africa is projected to pick up to 7.0 percent from 6.0 percent in 2007.

Inflation & Interest Rates
Headline inflation has increased since mid-2007 in both advanced and emerging economies. Core inflation has also drifted upward. In the United States, the Federal Reserve has been cutting interest rates in response to increasing downside risks to activity, while policy has been on hold in the euro area and Japan.

PPP basis
The latest IMF projections are calculated using revised purchasing power parity (PPP) data published by the International Comparison Program in December 2007. This has resulted in a downward revision of the previous estimates of global growth during 2005-07 of around Ú percentage point a year relative to the estimates in the October 2007 World Economic Outlook.

Outlook
In a separate Global Financial Stability Report Market Update, the IMF said that deteriorating economic conditions could exacerbate pressures on major financial institutions that have already suffered big losses from the subprime crisis.
A possibly deeper economic downturn in the United States or elsewhere could also serve to widen the crisis beyond the subprime sector, as credit deteriorates more broadly, it stated.

The investigation into how Jerome Kerviel, SociŽtŽ GŽnŽrale’s rogue trader managed to lose $7.2 billion before being caught is beginning to reveal how he sidestepped the bank’s many layers of fraud detection--and how cutting-edge technologies might have plugged some of the holes the Frenchman exploited.
According to Bussinessweek.com, SociŽtŽ GŽnŽrale’s rude awakening, combined with the US mortgage meltdown and a global credit crunch, underscores just how vulnerable companies can be to market misjudgments and inadequate internal oversight. It’s little surprise, then, that the financial industry’s misery is becoming a boon for providers of risk and fraud detection technology.
“Risk management software is a very hot area right now, it’s one of the strongest growth areas in 2008,“ says Julio Gomez, analyst at researcher Financial Insights.


E-mails Trick Detectors
Kerviel apparently used his experience working in SociŽtŽ GŽnŽrale’s compliance department to exploit both human and technological weaknesses. A key element of his alleged scheme was creating fake futures trades to offset the investments he was making in European index funds. To deflect a supervisor’s questions about whether he might be hedging his own trades, Kerviel reportedly says he crafted fake e-mails detailing order requests from supposed clients.
While SociŽtŽ GŽnŽrale is said to be using state-of-the-art risk management software, it doesn’t appear to have the most advanced detection technologies, say some consultants.
Still, even the latest technologies are designed largely with past breaches in mind, and will always be vulnerable to new schemes concocted by knowledgeable insiders like Kerviel.
Indeed, better technology wouldn’t have been of much use if, as Kerviel reportedly claims, his SociŽtŽ GŽnŽrale managers were simply turning a blind eye because he was making more money for the company.


Getting More Sophisticated
Other advanced software can profile the different actions a trader takes over time, rather than simply flagging breaches of certain restrictions such as a $1 million trade limit or moving money to other countries.
This technology creates profiles of traders’ habits, including the types of trades a trader typically makes and what time they typically log in and from which workstations. Such a system might have helped establish when and how often Kerviel might have been logging in with co-workers’ accounts.
Actimize says about half its clients use its technology to check when traders overstep trading parameters, but that less than 8 percent use its analytical profiling tools.
Then again, even less sophisticated measures might have prevented Kerviel’s alleged fraud. SociŽtŽ GŽnŽrale might have simply programmed its computer trading systems to set restrictions on the types, size, and volume of trades that specific employees are supposed to be engaging in.
While basic risk management technology is already a staple at many financial institutions, the market’s financial crises are prompting firms to consider how they can use more sophisticated analytical tools. The idea is to continually comb a company’s data, breaking down silos between departments to assess risk across an entire organization more effectively.

Playing Catch-Up
Still, technology on its own isn’t a cure-all. Late on January 29, the French publications Le Monde and MediaPart released portions of a transcript from an interview that police conducted with Kerviel.
The 31-year-old reportedly admits that he falsified documents and hacked into the bank’s computer system to quiet suspicions by internal control units, external counterparties, and authorities about his fake trades.
But he contends the bank’s managers must have known what he was doing, because the volume of his trades and his profits were higher than a trader in his department typically made.
“As long as we were making money and it wasn’t too obvious and was working, no one said anything,“ Kerviel told the police.
If he’s telling the truth, then even the best security software might have failed. Similarly, good technology can be no match for human shortcomings: Kerviel’s actions did raise some red flags, but bank officials apparently put more faith in their employee than the warnings.

A decision by India’s Reserve Bank to keep its policy rates, the bank rate, the reverse repo and the repo rates as well as the cash reserve ratio (CRR) unchanged, reflects the several dilemmas it is facing simultaneously.
According to Hindu.com, the traditional one--of reconciling the objective of price stability with the needs of the real economy--obviously remains and is emphasised once again. However, on the eve of the latest credit policy statement, global cues seemed to engage attention in policy debates.
More than at any time in the recent past, the monetary policy has to focus on the external sector, now accounting for 40 percent of the GDP. Specifically, the lowering of interest rates in the United States in the wake of a massive 0.75 percentage point cut in the federal funds rate led most market participants to expect a reduction in rates by the RBI also.
The reasoning, not entirely without merit in the context of the last week’s stock market meltdown, was that the US initiative, in the absence of a corresponding cut in interest rates by the RBI, would increase the flow of portfolio and other funds to India in search of a higher return.
However, domestic inflation--though running below its target of 5 percent--continues to be a major cause for worry. Global oil prices remain high and have not yet been factored into domestic inflation figures. Besides, although the prices of primary food articles have come down recently, the outlook on the food front is still hazy.
At the global level, prices of food grains, especially wheat and corn, are ruling at record levels and it is partly in response to this development the government sharply hiked the minimum support price for wheat due for harvest soon. Unless the subsidies are increased substantially, food prices are bound to go up even after a successful harvest.
Retaining its GDP forecast for 2007-08 at 8.5 percent, the RBI, like many other central banks, views inflation as the biggest threat to macroeconomic stability. Its immediate aim is to contain inflation at close to 5 per cent while anchoring expectations in the region of 4 to 4.5 percent.
Money supply and bank deposits have continued to grow ahead of their targets. Growth in non-food credit has decelerated, partly as a result of the RBI’s directives to tighten lending norms for certain overheated sectors including real estate. The RBI would continue to emphasise credit quality and credit delivery particularly for employment-intensive sectors and pursue financial inclusion.
By opting for the status quo in interest rates, the central bank has given itself some flexibility; it can choose to modify the rates at a later date, depending on exigencies arising from domestic and global developments.