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| Stefan Ingves, Governor Central Bank of Sweden, presently Chair of the Basel Committee |
After meeting with a large number of peers during our European tour, currently in the UK, and talking to many of you, group treasurers, CEOs and CFOs, over the phone we understand you share a deep concern over the present credit crunch and the outlook for the future. We have also been in frequent and close contact with large banks and other players in the market. The conclusion is clear that the new regulation, mostly Basel III and the OTC regulation, will impose severe restrictions on corporate lending and risk management from banks. The corporate community reacts on this fact:
1. Default reaction
– Pragmatically
adjust the business to the new
conditions. In this case it means adjusting to less availability of cash
leading to reduced employment, growth, investments, cash tied up in new margin
calls, increased vulnerability of the supply chain etc
2. Necessary reaction – Build up a new ”corporate financial system” with peer to peer lending, derivatives trading, A/R auctioning etc. The strongest company in the
supply chain will have to take increased financial responsibility for the
weaker parts
3. Optional reaction – Actively act to change the new regulatory regime. Here is where the peer group and this blog come in....
1
and 2 is already happening
and by passively adapting to the situation we risk further severe disruptions in the
global economic activity. 3
is at the moment not even contemplated
by the corporates themselves. The
reason is that the probability of the regulatory framework to change is
regarded as slim and there has been no uniting force voicing
the concerns of the corporates. Contact me if you want to discuss ideas to change the situation.¨
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