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Recent and Future Trends in the Financial Industry - Institutions, Infrastructure and Regulation

Duration: 2 days
  • The Global Financial Crisis – Causes and Implications
  • Political and Regulatory Responses to the Crisis
  • The Move towards a Strengthened Trading Infrastructure
  • Recent and Future Changes in Accounting Principles
  • The Past and Future Roles of Rating Agencies
  • The Outlook for Hedge Funds and Private Equity Funds
  • The Future of Securitization and Hybrid Financing Techniques
  • New Investment Products and Risk Management Tools
  • Scenarios for Future Market Developments
Over the last 4-5 years or so, the world’s financial system has gone through its greatest crisis since the Great Depression. Severe financial problems have emerged simultaneously in many different countries, and the economic impacts are being felt throughout the world as a result of the increased interconnectedness of the global economy.

The objective of this seminar is to give you a thorough understanding of how this crisis is changing the global financial landscape and to provide you with the insight, inspiration and tools to meet the challenges that face the financial industry of the future. The seminar is organized into four parts.

First, we describe what went wrong, and the extent to which the crisis challenges past intellectual assumptions about the self-correcting nature of financial markets. We explain the interplay between macro-imbalances and financial market developments and innovations which have accelerated over the last ten to 15 years and which have lead to the growth of the “shadow banking system”. Specifically, we explain and discuss the how increased use of leverage, changing forms of maturity transformation, over-reliance on sophisticated mathematical models, the “procyclical” effects of ratings, rating triggers, margins and haircuts, and the failure of market discipline have contributed to the crisis.

We then discuss possible changes to banking regulation and supervisory approaches that will evidently follow from the crisis. We explain what actions are required to create a stable and effective banking system, and we discuss the possible implications for capital and liquidity requirements (Basel II, Solvency II etc.). We also look at proposed changes to accounting principles (e.g. “fair value” accounting and the accounting for off-balance transactions) and we discuss how rating agencies will be regulated in the future.

Further, we describe and discuss a set of wider issues raised by the crisis. These include the need for a strengthened market infrastructure for trading, clearing and settlement and for new and more comprehensive risk management tools and methods. We also discuss the changing roles of hedge funds, private equity funds, investment banks, prime brokers, rating agencies and other market participants.

Finally, we discuss recent and future developments in markets for investment products, derivatives, asset-backed securities etc. We explain what will be the driving forces behind these developments and we give practical examples of how these products can be used optimally in portfolio and risk management under the changing assumptions imposed by the crisis.

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 The Global Financial Crisis – Causes and Implications

  • Macro Trends and Global Imbalances
  • Financial Innovation
  • The “Shadow Banking System”
  • Excessive Leverage
  • Increased Procyclicality
    • Ratings and Rating Triggers
    • Margins and haircuts
    • Capital adequacy rules
  • Policy Mistakes
    • Irresponsible deregulation of financial markets?
    • Did the abandonment of the “Taylor Rule” cause the crisis?
  • The Failure of Market Discipline
  • Implications for Financial Markets
    • Liquidity and credit crunch
    • Quasi-nationalization of banking sector
    • Stock market crash
    • Collapse of securitization markets
    • Widening of credit spreads

12.00 - 13.00 Lunch

13.00 - 16.30 Political and Regulatory Responses to the Crisis

  • The Need for a Systemic Approach
  • Need for a Global Coordination of Regulation
  • Bretton Woods II?
  • Capital Adequacy Rules
    • Increasing the quantity and quality of bank capital
    • Increases in trading book
    • Avoiding procyclicality in Basel 2 implementation
    • Creating counter cyclical capital buffers
  • Accounting Principles
    • Offsetting procyclicality in published accounts
    • A gross leverage ratio backstop
    • The future of “fair value” accounting
  • Containing Liquidity Risks: in individual banks and at the systemic level
  • Implications for the Regulatory Framework
    • The post-crisis financial architecture
    • Revisions to Basel II/CRD and Solvency II
    • MiFID
    • Glass-Steagall II?
  • Regulation of Rating Institutions
  • Regulation of Remuneration

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 Developments in Trading, Documentation, Clearing and Settlement

  • Why We Need a Stronger and More Integrated Infrastructure
  • Consolidation and Integration of Exchanges
  • Developments in Clearing and Settlement Systems
  • Netting, clearing and central counterparty in derivatives trading
  • The ISDA “Big Bang” Protocol for CDS Documentation
  • The Move to Centralized Clearing of CDS and other OTC Derivatives
    • How clearing works
    • How the ISDA “Big Bang” will facilitate the migration of trades to a central clearing counterparty (CCP)
    • Case study: Important CCP’s and how they operate

The Changing Financial Landscape: Hedge Funds, Private Equity Funds and Sovereign Wealth Funds

  • A Closer Look at Recent Years’ Hedge Fund Performance
  • The Impact of Hedge Funds on Financial Markets
  • Private Equity Funds and their Impact on Equity and Credit Markets
  • Sovereign Wealth Funds and their Increasing Importance as Capital Providers
  • The Move Towards Stronger Regulation of Hedge Funds etc.

12.00 - 13.00 Lunch

13.00 - 16.30 Recent Developments in Securitization and Hybrid Financing Techniques

  • Developments in “Traditional” and “Synthetic” Securitization
  • Securitization and the “Shadow Banking System”
  • Leveraged Loans and Bonds and Hybrid Debt Structures
  • The Future of Securitization and Hybrid Financing

Rating Agencies – a Revised Framework

  • Existing Framework
  • Proposed EU Regulation
  • Regaining Trust in Ratings

New Investment Products and Risk Management Tools

  • Developments in Equity, Bond and Derivative Markets
  • Recent Innovations in “Structured Products”
  • New Tools for Integrated Risk Management and Capital Allocation

Outlook, Summary, Evaluation and Termination of the Seminar