One week after the strong Friday
rally on the EU announcement of a Spanish bank bail-out plan, the markets have
moved lower.
There is now more uncertainty because the plans for central bank authority across financial institutions have to be decided before year-end and the form of the use of bail-out funds has to be operationally set. Announcements are great, but markets will eventually move on details.
The idea that there would be broader bank regulation is an important step in regulatory integrations, but the rules have to be put into place. The idea that there will be a one-off loss of seniority for bail-out bonds is again helpful, but it is not clear what is the precedent that is being set. In these special times, investors want details, debtors want money, and creditors do not want to stuck with the bill. It is unlikely that all will be happy. The alchemy of finance is that risk can be shifted, but not destroyed. Debt has to be paid and cannot disappear.
There is now more uncertainty because the plans for central bank authority across financial institutions have to be decided before year-end and the form of the use of bail-out funds has to be operationally set. Announcements are great, but markets will eventually move on details.
The idea that there would be broader bank regulation is an important step in regulatory integrations, but the rules have to be put into place. The idea that there will be a one-off loss of seniority for bail-out bonds is again helpful, but it is not clear what is the precedent that is being set. In these special times, investors want details, debtors want money, and creditors do not want to stuck with the bill. It is unlikely that all will be happy. The alchemy of finance is that risk can be shifted, but not destroyed. Debt has to be paid and cannot disappear.
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