The Capital Markets

CHAPTER 33Conclusion

Gary Strumeyer and Christian Edelmann

In this final chapter we aim to provide an outlook for the capital markets industry. We live in times of unprecedented change and uncertainty; hence, instead of applying the crystal ball approach, we

• Review the state of the financial system, noting that banks have become safer but that some risks may have shifted into capital markets (section 1).
• Review the impact of potentially unintended consequences of regulation (section 2).
• Conclude with a view that the industry needs to reinvent itself and provide perspectives on how Blockchain could be part of that journey (section 3).

SECTION 1: SAFER BANKS, BUT IS THE FINANCIAL SYSTEM SAFER?

As a result of a wave of regulation after the crisis and significant management action, banks have now become safer. Leverage ratios are down, capitalization levels are up, funding is more stable, and banks hold a higher share of highly liquid assets. Regulators, via stress tests such as CCAR in the United States, also have a much better understanding of the risks banks take and have built a much more strategic regulatory dialogue.

Yet there are some offsetting effects of shifts of risk to the capital markets. Factors like a higher share of electronic trading and more centralized clearing have increased overall operational risks and asset owners have absorbed a much higher share of liquidity and credit risk, as shown in Figure 33.1.

Figure 33.1: Shifting risks

Source: Oliver Wyman ...