Banking, Financial Markets and Regulation
Like the regulatory framework, the structure of the international financial markets influences the development of financial service providers and economies. Scenarios for the future development of the global financial market, and the related opportunities and risks, are a major part of the work of Deutsche Bank Research.
Talking point
European banks: Recovery running out of steam?
The European banking industry has gone into reverse gear this year so far, following substantial progress in 2014 and 2015. Its revenues and profits have relapsed into contraction, and the potential for lower loan loss provisions to come to the rescue seems exhausted. Once more, cost cuts have not kept pace with the retreat on the income side. In a market environment that continues to be very challenging, banks may have to resort to even tougher measures to put themselves on a sustainable footing again. [more]
Global financial markets
Free market in death? Europe’s new bail-in regime and its impact on bank funding
With the Single Resolution Mechanism taking full effect in 2016, winding-up large European banks in distress has become a more realistic scenario than ever before. One of the key elements of such a resolution is the bail-in tool. It is supposed to ensure that for investors, higher returns also involve higher risk, thereby establishing greater discipline and differentiation in markets for bank debt. Indeed, our analysis shows that market participants see the new bail-in regime as credible, which is a necessary precondition for a successful application. Important issues that still remain are the market depth for bail-in instruments and legal clarity about bail-in hierarchies. In any case, banks’ funding costs are likely to rise as a result, especially in the medium term. [more]
Global financial markets
Promoting investment and growth: The role of development banks in Europe
The financial and economic crisis brought development banks back in the spotlight. They are seen as part of the economic policy toolkit for overcoming cyclical and structural difficulties in economies, complementing financial systems by improving their functioning and bolstering economic resilience. Interest in development banking to promote growth and boost investment has increased especially in Europe of late. Given the current economic environment and changes in Europe’s banking and financial markets, development banks are bound to continue playing an important role in the coming years. Rather than crisis relief, their focus is shifting (back) to supporting structural change in economies. Here, they can play a useful complementary role, focusing on areas of market failure but risks lie with potential “overburdening” of development banks and setting expectations too high for what they can achieve. [more]
Corporate funding in Germany
Monitor Corporate funding in Germany
Loan books with German corporates and self-employed remained virtually unchanged in Q2 (+0.1% qoq / +1.6% yoy). Following strong expansion before, lending to the mechanical engineering/car industry fell significantly, in contrast to continuing robust growth in the services sector. Loan volumes rose at most banking groups, but shrank at foreign banks and Landesbanks. Interest rates declined further and deposit rates could well turn negative soon. Leasing reached a new record level, corporate bond volumes were higher, too. The German economy continued its growth trend also in Q2 (GDP +0.4% qoq), though the drivers changed temporarily. Investment fell substantially and private consumption disappointed as well. By contrast, foreign demand delivered a strong result. The GDP growth forecast was raised slightly for 2016 (to 1.9%) and lowered further for 2017, to 1% (available only in German). [more]
Research Briefing
High-frequency trading: Reaching the limits
The tremendous growth momentum in high-frequency trading seems to have reached its limits in recent years. The increasing cost of infrastructure and relentless competition within the industry are probably the first to blame. In addition, high-frequency trading firms are hardly participating in those dark pools where large block transactions are executed. Both trends are challenging their business model and trading strategies as high-frequency traders have seen their revenues and profits erode. Furthermore, forthcoming tighter prudential regulatory oversight may lead to an overhang of capacity in the high-frequency trading industry. [more]
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