AT THIS YEAR’S Sibos convention, in Toronto, a wide variety of attitudes towards the state of the transaction banking industry were apparent. On one hand, participants looked fearfully at the recent and upcoming changes in regulation that will deeply affect the sector: the possible effects of Basle III have been a much debated topic. On the other hand the attitude towards emerging markets at the conference was positive; while Europe and the US were perceived to be adversely affected by new regulations, emerging markets – in particular Asia – looked set to benefit from their relatively unchanged regulatory landscape.
Capital requirements and liquidity
Sibos participants were greatly concerned about the potential side effects of regulations dealing with capital requirements and liquidity.
The fear is that the new regulations might render the US and Europe unfavourable locations to do business. The increased capital requirements introduced by Basle III might adversely affect profitability, thus driving potential market participants away to perceived greener pastures.
Basle III, which will begin to be implemented in 2013, will require banks to hold a key capital ratio of at least 4.5%, an increase from the 2% mandated under Basle II.
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"I find it bizarre that the US has not yet adopted Basle II, yet the EU is looking to adopt Basle III"
Nadine Lagarmitte, HSBC |
"I would not call Europe over-regulated, but I would say that it is super-regulated. I find it bizarre that the US has not yet adopted Basle II, yet the EU is looking to adopt Basle III," comments Nadine Lagarmitte, head of financial institutions and government sector sales for Europe and Africa and payments and cash management for Europe at HSBC.
Several senior figures at the conference indicated to Euromoney that they believed that the banking industry should challenge the regulators’ assessments of what is necessary to safeguard the stability of the financial sector. Lagarmitte was adamant that there should be a response, arguing that "the industry needs to challenge these regulations – strong leadership is required".
Standard Chartered told Euromoney that it had already been taking steps to present a case to the regulators. The bank has been working with other institutions to collate data to show that Basle III might be taking a stricter line than is necessary.
"We’ve been working with a clearing house studying liquidity and the behaviour of operational accounts," says Karen Fawcett, group head, transaction banking, at Standard Chartered. "The study has shown that corporate operating accounts are extremely stable. Regulators are currently assuming 25% would run off in a crisis, whereas the actual figure is much lower."
Standard Chartered believes that the best way of convincing regulators of the veracity of its claims is to approach them in conjunction with other banks. "If you go in alone the regulators assume you are arguing your own corner. It’s important to go to the regulators as a group," says George Nast, the bank’s global head of product management.
Deutsche Bank’s head of finance and cash management for corporates, Michael Spiegel, urges a lower-key response. "The banks need to work together with the regulators to move forward, but we have to be aware to not be seen as ganging up on the regulators," he says.
Should regulations continue to make Europe and the US less attractive regions to do business in, Asia will stand to benefit from greater attention from large multinationals. HSBC has noted an increase in interest in the Asia-Pacific region, likely linked to its comparatively stable regulatory environment.
"We are seeing an increase in competition in the Asia-Pacific region, but it’s not caused by new start-ups. It’s more a case of companies with a global presence increasing their level of focus on the region," says Ian Banks, head of HSBC Security Services Asia.
Increasing attractiveness of emerging markets
The mood at Sibos towards emerging markets was by and large positive. Emerging markets, particularly the Bric (Brazil, Russia, India, China) nations, are increasingly considered a favourable alternative to the hard-hit states of Western Europe and the US.
Part of the reason that emerging markets have done well in the recent turmoil is their comparatively static regulatory regimes. Companies operating in the region have not had to shoulder the costs of conforming to a host of new regulations. According to Banks, Asia, in particular, has benefited from this changing attitude. "There are fewer stresses on the individual countries in the region, and the region isn’t feeling a need to catch up with the changes occurring in the west, so things may remain stable for some time," he says.
Europe has barely been left bereft of transaction bankers, but it seems that interest that was traditionally focused on Western Europe might be moving to the east of the continent. ING’s global head of financial institutions, Malcolm Brown, explained to Euromoney that the focus is indeed drifting eastwards. "Central Europe looks set to benefit from three years of pent-up supply – and the area is giving a better risk-return ratio than Western Europe," explains Brown.
This is a huge change of fortunes for the region. A few years ago Central Europe was looking likely to suffer a financial meltdown, and prudent investors were curtailing their exposure to the region as quickly as possible. However, with recent events in the eurozone the rest of Europe is looking more and more attractive.
Russia and Poland in particular are ripe targets for expansion, the former traditionally being the regional powerhouse and the latter having escaped the financial crisis practically unscathed.
"When you think of the region, you simply can’t avoid Russia. Poland is also looking very attractive – it has come through the crisis better than anyone else and has the strongest stock market in the regional listings," says Brown.
