NEW YORK & LONDON--(BUSINESS WIRE)--Six years after the financial crisis, massive leverage, thin capital cushions and a global laissez-faire legislative agenda are gone, says market structure analyst Larry Tabb, founder and CEO of the capital markets research and advisory firm TABB Group. “It’s time now for investment banks to pivot and move in a new riskless principal service business direction.”
In a new commentary titled, “The Investment Bank Pivot,” posted today on the 26,000-member TabbFORUM.com capital markets network for thought leadership, Tabb addresses first how regulators are forcing investment banks to take less risk to ensure financial surety and how legislators and regulators are increasing the capital cushion that protects banks, reducing their overnight funding reliance, limiting proprietary trading, increasing the required margin on OTC derivatives and pushing significant counterparty risk into central clearinghouses.
Today’s primary directive across the capital markets is “never again.” No more financial crises, no more bailouts. But for Tabb, the question remains – knowing that investment banks need to pivot, transitioning their trading businesses from profiting on appreciating assets to one more based on the collection of fees, from trading as a principal to trading as an agent, and from providing liquidity to brokering liquidity – how will this impact the markets?
As Tabb sees it, this new model requiring banks to net risks more quickly will effectively put them out of the storage business and squarely into the moving business as risk will shift from the intermediaries to the asset holders, whether they are issuers, underwriters or investors. “While banks will hold less risk, this won’t be the end of the world as we know it. This transition will actually lead to innovation, efficiency and a new wave of investment with both banks and investors developing and acquiring new valuation, risk, analytics, collateral management, matching, aggregation and distribution technologies.”
“Financial regulation was intended to make the world safer,” he says, “but, it will also make markets more transparent, less intermediated and less complex. This will benefit not only institutional investors and corporations, but individuals on Main Street as well.”
Mr. Tabb’s commentary can be read at http://tabbforum.com/opinions/the-investment-bank-pivot.
About TABB Group
Based in New York and London, TABB Group is the research and consulting firm focused exclusively on capital markets, using the interview-based, “first-person knowledge” research methodology developed by Larry Tabb.