A short guide to the regulation

A surprising Basel Committee proposal – a new capital charge for interest-rate risk held in the banking book – is set to challenge banks’ business models and will limit arbitrage opportunities. Bankers will be caught off-guard by this costly proposal, which some say ignores the fundamental difference between banks’ trading and banking books.

Low yields on European bonds, which are helping companies raise record amounts of debt at favourable prices, are unsustainable and fixed income investors risk losing out when the markets normalise, says Jan de Ruiter, Country Executive of RBS Netherlands.

Moody’s attempt to improve the transparency and predictability of its credit ratings should be welcomed. But is it high time the agency dropped the pretence of default-signalling when, like its rivals, the ratings have sometimes been more about measuring loss risk than an accurate gauge of credit default?

German companies are raising record amounts of cash in the bond markets as they capitalise on global demand to diversify funding.The long-term result could be a permanent change in corporate Germany’s funding model and a strong base for future growth, says Ingrid Hengster, RBS Country Head, Germany, Switzerland and Austria.

Britain’s monetary and fiscal policy appears increasingly impotent after four years of flat-lining growth and stubborn inflation. To end its economic malaise the UK requires radical supply-side reforms that create the conditions for business to thrive, not further stimulus. Ross Walker, Senior UK Economist at RBS explains.

There is no magic formula that would cut Italian debt without triggering a civil uprising or worse: further boost popular support for sovereign default. A combination of measures – privatization, tax reform and cleaning up the corrupt state leviathan – is needed. But few are holding their breath.

Considerable uncertainty is vexing derivatives players amid a raft of questions over the Dodd-Frank regime. The exact details of the rules pertaining to margins, trading, cross-border dealings and the Volcker rule remain ambiguous, with final rulings yet to be published. No one can predict the net cost of this new regulation but derivatives players are still quaking in their boots.

Sanjay Mathur, Managing Director & Head of Economics Research, Asia Pacific ex-Japan, at RBS, believes that fears of currency wars are steeped in political posturing, rather than economic reality, and that any managed depreciations by central banks will only be effective in the short term.

The ECB has become a prisoner of politicians and markets through its commitment to buy the sovereign bonds of struggling eurozone members, Otmar Issing, one of the euro’s main architects, has told RBS.