Disruptive regulation: Three investment opportunities

It’s been nearly a decade since the global financial crisis prompted an onslaught of regulations in- tended to abolish excessive risk-taking and make the financial system safer. Yet the implementation of reforms – and their disruptive effect on financial business models – will peak only over the next few years. Over this period, we believe banks will exit more non-core businesses, specific funding gaps will become more acute and dislocations between public and private markets will become more frequent. Each will create investment opportunities for less constrained and patient capital to capture economic profits being ceded by banks.

Whether driven by Dodd-Frank, Basel III, Basel IV, or IFRS, banks are facing an increasingly complex web of regulation, as shown in Figure 1. This is creating ongoing pressure in the form of higher capital requirements, loss provisioning and compliance costs.

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