In Europe, trust in banks is very low and still falling. This is not just about the perception of bankers, but about the long-term health of banks. The shape of banks to come is still shrouded in uncertainty, but some things are known. Through new regulatory rules they will need to be much better capitalised. Through new tough prudential measures they will not be able to participate, or participate to the same extent, in some types of activities seen as risky (but also highly profitable). The bursting of the credit bubble has left them with legacy assets that will need long work-outs.
All of this casts a shadow over the long-term health and profitability of the banks. This in turn will make it more difficult and expensive for them both to borrow on an unsecured basis and to raise new equity. All of this spells just one word: deleveraging.
