Dear SAP Banking community members,
Two weeks ago, Mr. Jean-Claude Trichet, President of the European Central Bank, gave a very interesting speech about the “Financial reform”.
You can find it in the following link
http://www.ecb.europa.eu/press/key/date/2011/html/sp110513.en.html
In my opinion, it’s more relevant what he didn’t say than what he did.
Some comments about it.
Mr. Trichet said “The near-collapse of Bear Stearns in March 2008, the default of Lehman Brothers in September 2008 and the bail-out of AIG the same month highlighted shortcomings in the functioning of the OTC derivatives market”
This is absolutely correct, but other questions show up. At this moment, according to the Bank for International Settlements the positions in OTC derivatives is approximately 10 times the global GDP
http://www.bis.org/publ/otc_hy1105.pdf
Of course, reducing this “crazy” exposure will reduce systemic credit risk but, what will be the economic impact of drying the liquidity generated by those contracts?
Mr. Trichet said “First, banking regulation, where the Basel III framework represents the cornerstone of the newly revised international regulatory architecture. This framework envisages higher minimum capital requirements, better risk capture, stricter definition of eligible capital elements and more transparency. It introduces entirely new concepts, such as non-risk-based leverage ratios and mandatory liquidity requirements”.
Again, higher Capital and Liquidity ratios mean less risk, but they also mean fewer loans, investments and less liquidity in the system. Does not anybody expect less economic growth?
Financial Services are the circulatory system of a capitalist economic system and money, investment and liquidity are the blood of the system. With less blood in the system, less oxygen will arrive to the organs and they will become more efficient or they will die.
In my opinion we’re moving from a Banking system based in volume to a banking system based in efficiency, with the new regulation as a driver of the transformation.
Why Mr. Trichet does not explain this? Because the roadmap to efficiency has very hard consequences and it’s not the right time to make them public, not yet.
By the way, Mrs. Christine Lagarde, Minister of Economic Affairs, Finances and Industry of France and one of the favorites to replace Mr. Strauss-Kahn as head of IMF said something interesting in the film inside job. I would recommend you listening her.
Looking forward to read your thoughts.
Kindest Regards.
Ferran.
Two weeks ago, Mr. Jean-Claude Trichet, President of the European Central Bank, gave a very interesting speech about the “Financial reform”.
You can find it in the following link
http://www.ecb.europa.eu/press/key/date/2011/html/sp110513.en.html
In my opinion, it’s more relevant what he didn’t say than what he did.
Some comments about it.
Mr. Trichet said “The near-collapse of Bear Stearns in March 2008, the default of Lehman Brothers in September 2008 and the bail-out of AIG the same month highlighted shortcomings in the functioning of the OTC derivatives market”
This is absolutely correct, but other questions show up. At this moment, according to the Bank for International Settlements the positions in OTC derivatives is approximately 10 times the global GDP
http://www.bis.org/publ/otc_hy1105.pdf
Of course, reducing this “crazy” exposure will reduce systemic credit risk but, what will be the economic impact of drying the liquidity generated by those contracts?
Mr. Trichet said “First, banking regulation, where the Basel III framework represents the cornerstone of the newly revised international regulatory architecture. This framework envisages higher minimum capital requirements, better risk capture, stricter definition of eligible capital elements and more transparency. It introduces entirely new concepts, such as non-risk-based leverage ratios and mandatory liquidity requirements”.
Again, higher Capital and Liquidity ratios mean less risk, but they also mean fewer loans, investments and less liquidity in the system. Does not anybody expect less economic growth?
Financial Services are the circulatory system of a capitalist economic system and money, investment and liquidity are the blood of the system. With less blood in the system, less oxygen will arrive to the organs and they will become more efficient or they will die.
In my opinion we’re moving from a Banking system based in volume to a banking system based in efficiency, with the new regulation as a driver of the transformation.
Why Mr. Trichet does not explain this? Because the roadmap to efficiency has very hard consequences and it’s not the right time to make them public, not yet.
By the way, Mrs. Christine Lagarde, Minister of Economic Affairs, Finances and Industry of France and one of the favorites to replace Mr. Strauss-Kahn as head of IMF said something interesting in the film inside job. I would recommend you listening her.
Looking forward to read your thoughts.
Kindest Regards.
Ferran.
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