Stymied by their lack of clout in the policy-making process in recent years, investment banks have often fallen back on dire warnings of higher costs for buyside clients, and consequently the real economy, if politicians and regulators put too hard a squeeze on the industry.
This tactic – ‘never mind what happens to us, look at what will happen to our clients’ – has not been enough to ward off an extremely tough time for investment banks. Capital and liquidity standards have been raised significantly. The structure of the over-the-counter (OTC) derivatives market is being shifted onto an ostensibly safer, more transparent footing through central clearing and registered trading platforms. The upshot of all this is higher costs for banks, with many dropping out of part or all of the market. European banks have caught the brunt of it. Deutsche Bank’s well-publicised troubles in the early months of 2016 stem, in part, from its investment bank no longer functioning as a great revenue engine.
