December 23, 2016

Table Talk: The Regulatory System Forces Us to Take Additional Risks

The complex environment in the capital markets forces institutional investors to take on additional risks. Experts from North Channel Bank and three other financial specialists discuss in the trade magazine Profi Invest how Depot A and asset managers can deal with the uncertainties in the markets and how these challenges can be overcome by targeted approaches.

Asset Management in a Difficult Interest Rate Environment

During the discussion, it was made clear what burden the negative interest rates place on the bank, as it has to hold certain assets as liquidity buffers in portfolio A. In the past, the bank was rather conservative, but now this approach has to be reconsidered The bank’s customers, who are more conservative investors, are also interested in alternative products such as US Life Settlements as an investment opportunity in this situation. In order to achieve adequate returns in the future, a change in the investment strategy is unavoidable.

Investments in Riskier Assets as a Consequence of Basel III

The regulatory system strongly influences the bank and there are only a few possibilities to comply with the Basel III liquidity coverage ratio. One of these is ECB-eligible securities. However, it is essential to invest in riskier assets in order to avoid losses in the LCR. It is a consequence of the regulatory measures and the low interest rates that force banks to accept additional risks; this will also apply to lending in the future.

Here you can read the full guest article in an issue of Profi Invest
Download Article, Profi Invest No. 2/2016 in German Only
(With kind approval of the copyright holder)