29 August 2014

Finance firms exiting businesses over capital requirements - survey

09 October 2012  |  4042 views  |  0 Dead end

A quarter of financial institutions around the world are exiting businesses because of the impact of increased capital requirements, according to a survey by the Professional Risk Managers' International Association (Prmia).

The poll of 170 Prmia members from the buy side, sell side, consultancies and regulators, shows an expectation that the introduction of central clearing will lead to lower margins, increased collateral requirements and a general rise in the cost of doing business in areas such as OTC derivatives.

Not only have 25% already withdrawn from capital-intensive businesses, 58% admit that they are more selective when undertaking such business and 18% plan to pass on extra capital costs to clients.

The SunGard co-sponsored survey also reveals that two thirds of respondents feel that less than half of OTC contracts will be cleared via central counterparties, suggesting that bilateral clearing will still have a significant role to play.

Nearly twice as many buy-side firms (45%) as sell-side firms (24%) do not run any reverse stress testing. Meanwhile, wrong way risk continues to be ignored by roughly a third of institutions.

There has also been the expected marked reduction in the amount of proprietary trading following the Volcker Rule, with only a quarter of firms saying they can carry on as before.

Dan Travers, director, product management, SunGard Adaptiv, says: "As banks begin to fully appreciate the impact of initiatives that were previously confined to silos in the risk management, front office or the exchange margining worlds, risk managers should have an increasingly direct impact on the bank and its business model."

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