In a quarterly earnings call in October, James Gorman, chief executive of Morgan Stanley, told investors and analysts that the investment bank is constantly reassessing “under what conditions we would act to shrink or change businesses” and added that: “We're not myopically focused on our size.”
The suggestion that the second largest US investment bank is thinking about shrinking provides stark evidence of the market and regulatory realities facing the banking industry. The combined and cumulative effects of Basel III, the EU's fourth Capital Requirements Directive and new liquidity regimes are having a staggering effect. In the coming months and years the global banking industry requires about €1100bn in additional equity capital, up to €1700bn in short-term liquidity, and about €2300bn in long-term funding.
