The financial regulators still seem to be ignorant of the fact that you cannot have both higher capital requirements for banks and also an expansion of bank lending.
Ever more onerous capital and liquidity requirements have steepened the refinancing challenge, even with highly supportive central bank funding on hand.
European banks, still grappling with high leverage and a worsening sovereign debt crisis, are particularly badly affected. Because of the escalating European banking crisis, they face intense pressure to meet new capital and liquidity requirements more quickly. With new equity virtually impossible to raise, this has only further exaggerated the de-leveraging problem.
It gets worse too:
You might think this a significant growth opportunity, but Mr Barnier\’s new solvency directive threatens to snuff that one out too, by requiring that only the most credit worthy and liquid bonds count for capital purposes.
The new solvency requirements virtually outlaw bundling together corporate loans and issuing them as asset backed securities, or rather, they prevent financial institutions from providing a viable source of demand for such bonds. Instead, finance is pushed by regulation ever more aggressively into sovereign bonds, even though many of them are now less than credit worthy.
The rules also threaten to stymie Government hopes of the private sector substituting for the public infrastructure spending being cut as part of the austerity drive. Many long dated infrastructure bonds don\’t meet the investment grade deemed necessary to qualify as a \”safe\” investments for insurers.
And doesn\’t that just stuff Ritchie\’s plan for infrastructure bonds?