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The past quarter – since the insolvency of Lehman Brothers – has been marked by massive intervention by the financial authorities, particularly in the US and in Europe, in an attempt to restore orderly markets through the recapitalisation of banks, the provision of government guarantees on interbank lending and in some cases government purchases of toxic assets, accompanied by a dramatic easing of monetary policy and selective fiscal stimulus, country by country, but in a coordinated pattern.
The critical question now is whether this will be sufficient to revive bank lending to the private sector, or whether further steps will be needed and what form these will take. The role of financial institutions has been called into question by the crisis, and it will need to communicate its role much more clearly, Tim Skeet argues in his foreword to the Quarterly Assessment.
The response to the international financial crisis
In response to the crisis, the authorities are moving towards significant changes in the regulation of the financial system. In this section of our Quarterly Assessment, David Hiscock sets out the agenda both at global and at European level. The starting point is the Group of 20 summit in Washington last November, which is to be followed up by a further summit in London in April, and is being accompanied at European level by work on the supervision of the financial system by a panel of wise men chaired by Jacques de Larosière.
The European Commission has also put forward proposals - some of which are controversial - to amend the Capital Requirements Directives and to regulate Credit Rating Agencies; and international work is continuing to develop a central counterparty for credit default swaps. A common theme in the industry's response to these new regulatory initiatives is that, besides being properly thought through, regulatory changes need to be consistent at European and global level. At the end of this section, Lalitha Colaco-Henry reports on a study being undertaken on more effective regulation.
Primary markets
The section on the primary markets begins with a summary of the issues discussed at ICMA's Primary Market Forum in London in November. In addition, the European Commission is consulting on its review of the Prospectus Directive, and ICMA is expecting to put forward some practical proposals in response. There are also reviews in this section on CESR's work on the Market Abuse Directive and on the Statutory Audit Directive. Ruari Ewing, Annina Niskanen and Lalitha Colaco-Henry report on ICMA's work in this area.
Secondary markets
One of the critical questions in the secondary markets is how to restore liquidity to the international bond market. ICMA's update of its Secondary Market Rules is intended as a helpful step. Andre Seiler and Lisa Cleary in ICMA's Legal Department are points of contact for members' questions on the changes in the Rules. Separately, regulatory attention is again focusing on post-trade transparency in the bond market. Lalitha Colaco-Henry reports on CESR's new Consultation Paper, and she and David Clark introduce ICMA's review of the first year in operation of ICMA's bond market transparency standard to help retail investors, and of services available to meet that standard.
Asset management
Following its meeting in Brussels in December, ICMA's Asset Management and Investors Council (AMIC) will be undertaking more work on money market funds in Europe. Nathalie Aubry introduces an initial AMIC report on money market funds, and also reports on the Commission consultation on hedge funds, where one of the questions is whether the boundaries of regulation of the financial system are going to be extended.
Financial infrastructure
A resilient financial infrastructure has been critical to the functioning of the market during the crisis. Ruari Ewing and Annina Niskanen report on a new Market Practice Book by Euroclear Bank and Clearstream Banking, and ICMA's Guidance Note on the provision of information and documents to intermediaries in a timely and accurate manner in the primary markets. Nathalie Aubry reports on credit claims and interbank transactions and on clearing and settlement issues; and Lisa Cleary reports on the current update of GMRA legal opinions.