Fear of what could happen if Greece abandons the euro, the dangers facing some of Europe’s largest banks, and a global economy experiencing sluggish or slowing growth are uppermost in the minds of Standard & Poor’s credit analysts covering major financial institutions. Among the key points the participants made at a recent discussion with CreditWeek editors were that:
- Global financial institutions will continue to face a period of transition as they respond to greater regulatory oversight and increased capital and liquidity requirements. In this context, the nature and extent of government support for large financial institutions remain key questions.
- European governments are likely to continue supporting their large troubled banks because the cost of letting them go under could prove too high.
- Despite low interest rates, a sluggish global economy will continue to thwart the consumer lending that could energize a rebound.
- Risk will always be a part of the equation for large, complex financial institutions–a fact that JP Morgan’s trading losses underscore.
- Capital remains important, but regulation is addressing that and starting to diminish it as a ratings factor. Banks’ business models are becoming more important, and those that can generate and sustain solid earnings are likely to fare better.
- However, capital requirements vary from jurisdiction to jurisdiction, which diminishes some of the advantages of large global operations.
- Life insurers are finding that low interest rates are cutting into their investment margins.
- Property/casualty insurance and reinsurance have shown resilience, despite a larger-than-usual number of natural catastrophes in 2011.
For a transcript of the discussion is available in 2012 Midyear Global Financial Institutions Outlook: Managing Risk, Managing Change