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The dawn of 2012 brings new hope — and new fears. The sense of foreboding in financial markets is pervasive, but sentiment is self-fulfilling. Investors, bankers and funding officials alike must approach the year with determination and calmness, or the troubles besetting markets will only get worse. There are many good reasons to feel confident, as well as to worry. EuroWeek highlights five of each.
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The ECB is going to be the only bank that grows this year. It therefore needs to start acting like one. That means getting its vast warehouse of repo collateral back out to a market that desperately needs it.
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Investment bankers at RBS might once have been able to argue that building a global investment bank was the best deal for taxpayers. Not any more. In the current climate, ditching that ambition is the right thing to do.
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The Basel Committee is right to warn local regulators about capital relief deals that seek to game the system. But more transparency in the market would be a big step towards safety, without restricting legitimate risk transfer.
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The ring-fencing of investment banks from retail lenders is a pivotal moment for the UK’s financial services industry. The measures will help appease the public, but unless investors and issuers are given certainty about how bail-in will be implemented, funding markets will remain closed.
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Policymakers need to be careful about muddying the waters with their public debates over how to regulate banks. But at the same time, banks and markets must come to terms with the fact that regulation has to be dynamic to be effective.
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Even the cuddliest, most regulator-friendly banks need to do plenty of maturity transformation. It’s right there at the top of the list marked “what banks are for”. But regulators are doing their best to legislate it out of existence in the banking and insurance system. Where else can we look?
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Taiwanese lenders pushing borrowers to increase the interest rates on their deals have the right idea. But they should get aggressive earlier in the process, using their bargaining power more strongly when it comes to the definition of market disruption clauses — and pricing.
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A rush of liability management exercises has highlighted the pressure banks are under to generate core capital quickly. But they should be careful not to lose sight of long term goals too.
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Last week saw a landmark event in covered bonds, with the first two Australian deals coming to market. But the new asset class has arrived stillborn. A rush to issue in spite of weak conditions has ruined the prospects for other deals.