In EU, Banks have changed their behaviour lately, e.g. as acting liquidity providers to certain markets like notes etc.

Introduction of Basel III is probably one reason (tighter capital and liquidity requirements). Due to new stress tests, some of European banks are seen to be in bad shape.

Anyhow, Basel III is not yet finished. How banks are expected to change their lending or market making behaviour during the end of this decade? Is it possible to estimate, what sectors are going to get hurt?


Interesting question. Indeed, Basel/I,II,III-type regulation changes the behavior of banks, that´s probably the goal of said regulation.

Its possible that their market behavior with respect to "notes" (which notes?) has changed.

bason on the typical Modigiliani/Miller intuition, it seems that there is no reason why Basel/type regulation will affect a sector or another. The main effects are in changing how firms get financed. If banks are expected to hold senior debt, then firms are more likely to issue senior debt. This changes how funds are intermediated from savers to investors, but in principle it should not change which sectors are financed. It should only affect how they are financed, with equity, preferred, junior debt, senior debt, senior collateralized debt, etc.

  • $\begingroup$ By "notes" I mean discount money market instruments (not bonds), but I think that the change has affected bond-markets, too. Previously, you had a more liquid corporate bond-market while nowadays you have to think that it is probable that you will keep the bond till the maturity. $\endgroup$
    – Gspia
    Aug 13 '16 at 4:26
  • $\begingroup$ So there are changes with respect to their banking book and their trading book. First, I thought about trading book but of course the main business is also going to change. I don't know the basel regulation: but do you mean that capital intensive sectors (customers) are going to be handled similarly as "light" ones? $\endgroup$
    – Gspia
    Aug 13 '16 at 4:32

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