Financial institutions face a daunting new regulatory landscape in the EU, requiring a complete overhaul of investment and funding strategies simultaneously across much of the sector. For insurers, Solvency II is due to usher in from 2013 – although with a long transition period – uniform standards for calculating solvency capital requirements (SCR). These standards will be based on the risks to which the insurer is exposed through both its written insurance liabilities and its invested assets. Capital will become a dynamic measurement driven by risks that are marked-to-market.
For banks, the regulatory capital components of Basel III have been increasingly absorbed, as many banks used 2010 to raise new equity or modify their hybrid capital structures. But the focus has shifted to the liquidity components of Basel III, requiring banks to rethink funding in a market for financing long-term assets that is still rather volatile.
