Regulation / banks

Why we will continue to need good research in the future

Bank research is currently facing a raft of challenges. The expectations of our clients, which include the local cooperative banks as well as institutional investors, have become much more demanding in recent years. This is also due to the greater demands placed by the end or private investors on our clients themselves. Increasing regulation impacts on almost all stages of our work, which also leads to a notable increase in the effort involved in research. At the same time, very strong competition means that clients are often quite reluctant to pay for research. However, this is about to change soon as the new „MiFID II“ provisions will require research to be offered as a reasonably priced service from next year onwards. The falling number of analysts in the big banks in recent years and increasing regulation has led some observers to assume that the sellside research that is generally provided…

European banks becoming completely marginalised

To avoid any misunderstandings: bank regulation makes sense. But it should be appropriate, coherent and internationally coordinated. This column is not a plea against regulation. Instead we believe that the developments in the USA should be used as an occasion to rethink the regulatory landscape in Europe, without any preconceptions regarding the outcome. US President Trump has started to implement another election pledge. The regulation of banks is to be simplified. On Friday he signed an executive order to examine the necessity of the individual regulations. This means that the Dodd-Frank Act and the Volcker Rule, which imposes restrictions on the own-account trading of banks, are to be subject to a review. The objective is to simplify loan granting and make it somewhat easier for banks to manoeuvre. This development stirs unpleasant memories of the last financial market and banking crisis. After all, this crisis rattled the very foundations of…

ECB WOULD DO BETTER TO CHANGE ITS KEY INTEREST RATE POLICY SOONER THAN LATER

In July 2012, the European Central Bank (ECB) lowered its deposit rate to zero, and some two years later it became negative for the first time at minus 0.1%. Since then, commercial banks in the eurozone have had to pay „penalty interest“ on surplus liquidity parked at their central bank. Only three months later, in September 2014, the ECB lowered the deposit rate once more to minus 0.2% and then again in December 2015 to minus 0.3% and finally in March 2016 to minus 0.4%. In March of last year, the main refinancing rate was also lowered to zero which meant that the commercial banks in the eurozone were now able to obtain the required central bank liquidity in normal tender operations without having to pay interest on this. Since then at the latest, money market rates and a considerable share of capital market yields in the euro area have…

How much politics can the Fed weather

This year the usual four voting FOMC members will be replaced. Given the annual rotation of voting rights, the monetary policy committee will in 2017 again be more strongly peopled by monetary policy doves who tend to advocate a cautious path to raising interest rates. The financial market expects to see two or at most three rate hikes. For this year, we expect that the Fed will raise its key lending rates twice and in each instance by 25 basis points. The currently vacant seats on the Board of Governors could be seized by the incoming US President as an opportunity to gain influence on the Fed’s uppermost decision-making body relatively swiftly. Moreover, it is to be feared that he will neither extend the period in office of the Fed Chair Janet Yellen, which ends on 3 February 2018, nor approve another period in office for Fed Vice Chairman Stanley…

Construction permits: despite a sharp rise, still failing to match demand for new housing

In mid-November, the Federal Statistical Office published new figures on permits for residential construction in Germany. They show that in the first three quarters of the current year permits rose by a considerable 24% to around 276,300 compared with the same period in the previous year. This is a positive development, as the shortage of properties is contributing to the rapid rise in property prices in many Germany conurbations. Despite this, residential construction still lags demand for new housing. Should the current trends continue, we can count on 370,000 residential construction permits for 2016 as a whole. Completions are likely to increase by some 9% to 270,000 residential units, meaning that residential construction remains well below the figure of 400,000 homes per year, which are required according to property experts. The longer the trend persists, the greater the number of homes which will have to be built in the years…

Financial stability given the stress of low interest rates

The Financial Stability Report recently published by Deutsche Bundesbank can be read to say that there is no acute threat to financial stability at present, but there are indeed a series of risks that bear monitoring. We share this assessment. From our viewpoint, the extremely low interest rates (for which the ECB is partly responsible given its monetary policy) are among the single greatest dangers to the stability of the financial markets in both Germany and Europe. The consequences of low interest rates include massive forfeited interest income on the part of citizens, something that makes establishing provisions for old age difficult. Another impact is the huge bottleneck in financial investments that can be seen from the fact that already one quarter of private monetary assets are parked in sight deposits and cash. Life insurers are also busy hunting for profitable investments, and are finding it ever harder to generate…

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