Financial Markets

financial innovation
1. securities lending
  1. Hedge Funds
    1. AIFMD
      1. non-UCITS funds
        UCITS fund: allow small investor to have access to the market
        collective investment schemes
    2. don't own what they sell
    3. uses short-selling: more efficient markets and resolve mispricing
  2. crisis: HF borrower short-selling
    1. defaulted + value of the collateral did not cover the losses
      1. domino effect
    2. help market to operate more efficiently
      1. HF can help resolve mispricing
      2. lender always has the right of ownership
        lending fee
2. reduc. costs
  1. better allocation of risk
    1. improve access for consumers
      1. better choice & decisions
        response to unmet need for consumers
        more efficient allocation of resources
        FSUG
3. securitization: allows for unitization
  1. offload bad loans from balance sheet
    1. Credit Risk Diversification
      1. SPVs
        information asymetry
        loans with misprice risks
        skin in the game
        alignment of interest between the arrangers and investors (at least 5% of the asset pool)
  2. (concentrating on a very small scale economics exposure
    1. accessible to individual small investors
4. derivatives
  1. hedge risk
    1. insuring against price movements
  2. speculate on fin. market
    1. option to sell/buy at a special time
  3. OTC: systemic
  4. modified exposure
  5. ETF: Exchange-Traded Fund
    1. transparent
    2. liquid
    3. increases volatility
60% of cross-border capital flows have fallen
trends
1. financial globalisation
2. rise of market-based finance
3. financial innovation (product & techniques)
4. high frequency trading
  1. lower transaction costs
  2. destabilize economy
5. democratisation of finance
6. fin. repression & re-regulation of fin.
measure integration
1. cost of capital should be the same across EU
2. price convergence among the states
3. volume of cross border flows
4. no more trading costs
bank balance sheet
1. assets
  1. loans
  2. reserves
    1. Core tier 1: 7.5% & 10%
2. liabilities
  1. deposits
  2. loans from other banks
  3. capital
    1. issue equity & bonds
      1. EONIA
3. unfunded liabilities
  1. + asset side
  2. - liability side
4. excess liquidity
  1. overvaluation of stocks
3 kinds of loans
1. Good (default >10%)
2. Medium (10%-30%)
3. Bad (<30%)
Branch vs subsidiary
1. subsidiary: separately capitalized. Regulated by Host MS
  1. Host: determines capital req. + decision of lender of last resort
2. branch: regulated by Home MS
Global ageing
1. a need to invest in fin. markets to get the money that we need for retirement

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Financial Markets

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	Created by Jules Landrieu over 8 years ago