UK banks are at risk of a credit rating downgrade in the event of a no-deal Brexit, according to S&P Global Ratings. Banks are poised for "stable" performance in coming years, S&P says, but a "disruptive Brexit" could bring them off track.
European banks shed $32 billion in operational risk-weighted assets in the second quarter, marking a 5% decrease compared with Q1. ING's 15.4% decline, to $43.5 billion, was the largest, while BNP Paribas' 3.4% gain, to $86.4 billion, was the only increase.
Decline of the Turkish lira is exacerbating fears European banks are exposed to Turkish assets, but banks say bond-market worries might be overblown. "Fears about a systemic banking crisis should subside once visibility on banks' exposure to Turkey improves," says Christoph Rieger, head of fixed-rate strategy at Commerzbank.
The Federal Reserve's conclusion of its program for purchasing mortgage-backed securities, which began a decade ago, is poised to make MBS supply soar by about 50% in the second half of 2018 as compared with the first half. Meanwhile, Bank of America analysts say a "risk-off phase" likely has begun for structured credit, while investors' decreased risk appetite is likely to affect products including mortgage-backed securities from Fannie Mae and Freddie Mac.
With seven months to go until Brexit and fear of no conclusive deal with the EU, analysts warn a 2% decline of the pound might be the start of a downward spiral. "We find that we are very much in the early stages of pricing for a 'hard Brexit,' " Nomura analysts say.
Reporting regulations' fast evolution means banks can no longer rely on a tactical approach to compliance from legacy technology and must look to cloud and open platforms, says Guillaume Spay, solution lead for capital markets and treasury at Finastra. "Legacy technology is generally quite old, and the only way to avoid losing market share is to be more agile," Spay says.
Ten investment banks and broker-dealers received fines from regulators due to misleading investors during the dot-com bubble. Conflicts of interest and conduct risk have followed banks through the financial crisis and beyond.
Now that a crucial deadline under Europe's revised Markets in Financial Instruments Directive has passed, the number of market participants holding legal entity identifiers is expected to remain at 1.2 million this year, says Allan Grody, who serves on two Financial Stability Board advisory panels. Many deem LEI adoption "a European effort with no robust commitments yet from US regulators," he says.
Zions Bancorporation's decision to stop being a bank holding company highlights the regulatory burden that comes with being a BHC. Zions is the largest bank to lose the status, looking to reduce compliance costs.