Section 10: Corporate Investment Banking

Starting in 2011, governments and regulators will begin the lengthy process of implementing measures designed to prevent another crisis. As the details of the regulatory response to the crisis begin to emerge, there is be a small window of opportunity for negotiation.

Xiong Yuanmeng warns that the new capital adequacy guidelines from Basel will significantly increase capital allocations in trade finance. This concern is also picked up by Dan Taylor, JPMorgan’s executive director of global market infrastructure, who draws attention to research showing that a bank would have to cut its trade finance by 6% under the new rules to maintain the same capital adequacy ratio and increase pricing by 20% to 40% to maintain the same return on capital. He also examines historical default rates that bring into question whether the proposed treatment of off-balance-sheet trade credits are justified.

Meanwhile, Goldman Sachs treasurer Liz Robinson writes that living through a financial crisis as a bank treasurer has given her a new appreciation of the value of excess liquidity and long-term funding. Goldman Sachs’ strategy emphasises long-term liabilities and short-term assets. Even so, Goldman responded quickly and decisively early in the crisis, reducing reliance on short-term funding and selling less-liquid assets.

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