|
|
|
|
|
|
|
10-06-08
|
Market Commentary: On "locusts" and "market monsters" - or what can we learn from the credit crisis?
|
|
Not enough that a few years ago a leading German politician introduced the term "locusts" for hedge funds into political discourse, no less a person than the German president has
seen fit to best him by calling banks "market monsters" and "alchemists". Instead of finding new appellations for one of the most important industries in Europe - which accounts
for about 10% of Swiss GDP and even in Germany itself for 4% - it would be more purposeful to consider what can be learned from the crisis in the US housing market so that banks
will be better equipped to deal with surprises in the future.
The Vice-Chairman of the Swiss National Bank, Philipp Hildebrand, recently put it in a nutshell: It would be the wrong reaction to the credit crisis to drown banks in a flood of
regulatory measures. He explained that every act of regulatory fine-tuning results in the regulator taking over, as it were, part of the banks' business, which suggests that the
regulator has a more detailed knowledge of all risks than the banks themselves. In this connection it is interesting to note that some of the institutions in Germany hit hardest
by the US financial turmoil are state-owned banks - in particular the insolvent Sachsen Landesbank and the West LB. Hildebrand continued that focusing narrowly on the current
crisis was a sure way of not preparing for the next crisis, which would be triggered by a completely different set of circumstances.
Therefore, he recommends equipping banks with better "shock absorbers" to prepare them for every type of terrain, including that still unknown to them. On the other hand, banks
that stick to a "smooth surface" on principle, typically private banks and retail banks, could continue on in their present form. However, banks with more risky business models
should have to meet stricter capital adequacy requirements. This idea seems sensible and acceptable. But it will be a challenge to gain international acceptance for these ideas,
which is necessary to ensure a level playing field for all institutions. In Switzerland the ball is now in the court of the Swiss Banking Commission.
As far as investment policy is concerned, we must unfortunately report that although the worst of the banking crisis is probably over, banks are not yet out in the clear. Various
statistics indicate that banks are still excessively cautious about lending capital, which implies that the need for further write-downs cannot be excluded. A crucial turning
point will come when US house prices bottom out. Some house price indexes indicate that this may be happening. Hence, we still have to contend with a volatile investment
environment for the time being. But we have not changed our view that it will stabilize in the second half of the year.
|
|
Dr. Thomas Steinemann
|
|
| Chief Strategist of the Vontobel Group |
|
| +41 (0)58 283 78 44 |
|
Contact
|
|
|
|
|
|
|
|
|
