Crisis Ahead? Risk Transfer From Bank to Asset Manager

In the wake of increasing regulation of the investment banking industry, asset managers are playing to not to be defined as “systematically important,” a designation that would free them from many of the regulations that are being imposed on investment banks by governments today. Many asset managers are finding new business by stepping forward into the void left by banks after the 2008 banking and housing crisis. They claim now that they are performing many of the duties that were the sole issue of commercial bankers, they should be less regulated so that they will be able to perform those duties with the same efficiency.

Proponents of the new designation say that asset managers are performing a much-needed service that will revitalize the world economy. As bankers lose their ability to take on profitable risk bearing projects, asset managers are using their expertise to provide liquidity to small and midsize businesses around the world. There is also the market for enterprise level businesses, a market that commercial banks have always deferred to investment bankers in the first place.

Opponents say that asset managers will only take advantage of the new distinctions. They point to the history of investment bankers as rule Breakers and financial opportunists. They lay the blame for the 2008 banking and housing crisis on investment banking. As such, they believe that these new bankers should not be able to conduct business as they please, no matter if they are performing new duties outside of their traditional realm. The tide seems to be turning in favor of the asset managers because of the liquidity that they are providing to the public sector. Many projects that need to be funded by government officials are being funded by asset managers who have also doubled as investors in various political campaigns. With the future of banking on the line, investment banking leaders wait on public opinion to reveal itself as the decisions come down the pipeline.

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