Paul J. Davies’ View to 2022: The End of Easy Money

(Bloomberg Opinion) --

What to Expect:

In finance, the year ahead will be a busy one for Gary Gensler, chairman of the Securities and Exchange Commission, who has pledged to crack down on everything from new forms of retail trading and crypto to private equity. It should also be a big year for Lael Brainard, promoted to Vice-Chair of the Federal Reserve, who will want to further influence bank regulation even though there will also be a new Vice-Chair for Supervision sometime soon. Central banks in the U.S., U.K. and Europe have all shown concern about high issuance and loose standards in the loans that back private equity buyouts. The European Central Bank is considering hitting the underwriters of the most aggressive buyout loans with extra capital charges. Meanwhile, the investment banks are hoping that all kinds of dealmaking, capital raising and trading revenue will stay near their recent high or record levels. Some areas like bond trading have begin to slow, but global M&A has easily beaten 2007's record of $4.1 trillion. But the hot streak (and the bonuses that will come of it) has been fueled by ultra-low interest rates and all the central bank and government support unleashed during the Covid pandemic. Those extraordinary measures are likely to be withdrawn in 2022. In the U.S. at least, rate rises are on the way. Higher interest rates could be helpful to lenders' income, but stock market traders will be watching through their fingers.

From the Year Behind Us:

Bank Executive Bonuses Feed a Bull Market in Bragging Rights: Wall Street's leaders have been getting extra bonus share awards this year. But the boom in investment banking has been driven by the flood of public money unleashed to support economies through Covid.

Think Italian Banks Are Bad? Look at Germany! A Deutsche Bank analyst got in trouble ahead of the country's elections in September for pointing out the need to reform German banking. If the new government under Chancellor Olaf Scholz can't grasp the nettle, broader European reform will be impossible.

Bank of America Shows Rivals Are Leaving Money on the Table: Citigroup Inc., Wells Fargo & Co. and JPMorgan Chase & Co. could all learn from Bank of America Corp. about how to get more interest for investors. The answer? Buy Treasuries.

Is Whistle-Blowing Really Worth $200 Million? A record pay out for information that helped prosecute market manipulation was a real headscratcher: It's important to preserve incentives and encourage people to come forward, but how much is too much?

Central Banks Want to Issue Digital Coins But There's a Major Trade-Off: From the U.S. Federal Reserve to the monetary authority of Bhutan in the Himalayas, everyone was checking out digital currencies. But there are big risks to both having them and not having them.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. He previously worked for the Wall Street Journal and the Financial Times.