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Investment Bank
Regulation and supervision of the credit derivatives market will continue to evolve
The investment banking industry has seen a lot of consolidation in recent years, with the development of a number of 'bulge bracket' banks, mainly from US roots. Bulge bracket firms are so-called because they provide the full range of investment banking services, across all the major regional financial markets around the globe - the US, Europe, Asia and Latin America.
The leading bulge bracket banks are US firms Goldman Sachs, Morgan Stanley Dean Witter and Merrill Lynch. These three are regarded as being in a super league of their own, because of the scale and quality of their work across the full range of investment banking business sectors and geographical regions.
Below the top three is a group of banks that are regarded as being in or just below the bulge bracket category. These include US companies JP Morgan, Salomon Smith Barney and Chase Manhattan, along with European-owned contenders such as Credit Suisse First Boston, UBS Warburg and Deutsche Bank. Below the bulge bracket tier is a larger number of more regionally focused investment banks that tend to offer a full range of services, but largely focus on a particular region such as Europe. Typically, these firms have developed from their parent bank, seeking to leverage upon its client base to develop business.
Regulation and supervision of the credit derivatives market will continue to evolve. The rules will apply to all participants, irrespective of their traditional sector definition or regulatory domain. It is advisable that market participants monitor these developments and preempt them where possible.
Manual credit derivatives processing platforms will be stretched to meet the minimum reporting standards in a cost-effective manner. The reporting burden can be expected to grow in both complexity and frequency, however; so all firms should consider automation - at least as a possibility.
To complicate the situation further, the regulations set down by the Basel Accord will be subject to national regulatory interpretation. This means not only that interpretation may vary but also that the regulations will take longer to implement. So, unless regulators around the world can ensure the regulations are reasonably uniform, the global players may be able to move activity to the less regulated jurisdictions.
The Bank of England emphasized this weakness recently and argued for an increase in global reporting of credit derivatives exposures. It recommended a global regulatory programme that identifies market concentration and promotes financial stability. All market participants should be aware of this situation because it could have considerable bearing on the evolution of their business.
At TKP, we have over 100 seasoned professionals who have chosen to specialise in the Investment Banking Sector. Investment Banking is not like any other industry, which is why our professionals work specifically in this industry.
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