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Rumours of the ECB purchasing covered bonds have excited bank funding markets. It is easy to see why — liquidity is low and the market needs a leg-up. But a policy that worked two years ago won’t necessarily cut it this time round. If the central bank really wants to reignite bank finance, it should buy senior debt.
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As a piece of political theatre it couldn’t have gone better. The ICB recommends ring-fencing amid a flood of “casino banking” rhetoric, then in the very same week UBS illustrates exactly how careless investment banks can be. But arguments about bank regulation should look past the latest scandal.
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Korean regulators have occasionally appeared heavy-handed with domestic banks, but recent turmoil shows that they are right to keep a tight grip on the country’s financial system. With Korean banks so reliant on foreign currency, the regulator should be more aggressive than ever.
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The rogue trading scandal at UBS is all too familiar. This time, the financial world should take a vow never again to say that risk management has improved. Fraudsters will always find gaps in the system. The only answer is constant, aggressive and flexible surveillance.
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While the Vickers report offered some comment on senior bail-ins, investors still lack a clear picture of how they will work. Investors are lost in a fog of advisory papers, and bank funding is in crisis. Regulators and governments need to shine a light.
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To be or not to be: that is the question for those running European investment banks as they return from a holiday period that has been anything but restful.
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The Australian regulator is pushing for faster implementation of Basel III rules among its banks. It is doing so because it can — the country's banks are in good shape. Others, like the Europeans, are not so lucky, but the regulatory and market pressure is on.
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In good times, investors trust forecasts and concentrate on individual securities. In bad times, the macro picture is all that matters – so you get a succession of hypes. Jackson Hole was the latest – it won’t be the last.
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Members of Afme’s Securitisation Division are hard at work hammering out details of the Prime Collateralised Securities initiative, hoping that regulators and politicians will let the ABS industry off the hook. But the PCS shouldn’t be a copy of covered bond standards. It should be better.
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Covered bonds might be in for their biggest ratings shake-up over the next year. The result could be the loss of many traditional investors, but others will step in to take up the slack.