Marc Rowan: prediction

Transcript context

…In the old banking model, say I get a checking account, and my local Chinese restaurant gets a small-sized loan. In relative terms, is there now less of that? What’s the opportunity cost of moving to more maturity-matched, higher-yielding assets? What is the economy giving up, even if it’s a good tradeoff? I think it’s clear that the largest companies in the world have access to both the banking system and to the investment-grade bond market every day. Medium-sized and smaller companies, no matter how creditworthy, have less access to the banking system and have virtually no access directly to the bond market. So, they increasingly will come through intermediaries. Some of that activity is below investment-grade and speculative. That’s a perfectly fine business. It’s not primarily the business we’re in. Some of that business is investment-grade and secured, and that is primarily the business that we are in. I don’t think it’s better or worse. I think that we are just looking at evolution. I’m constantly reminded that financial services is not a status quo business. I go back to when I started, beginning a high-yield bond market: not a lot of high-yield bonds, no levered loans, no ETFs, not a lot of securitized product. Those four products today, we take as mainstream products. Why do we expect that 15 years from now or 20 years from now, the same four products will be as dominant? We will end up with a new set of products and a new set of markets that reflect differing market conditions and different regulatory conditions and different conditions of financial institutions. It’s just change. Now, how stable is all this as a political equilibrium? If you think about the four major banks, as you well know, there are very serious stress tests applied to them, capital requirements. The Fed is a major regulator. At least for insurance, it tends to be at the state level. One can reinsure through Bermuda. Capital requirements are very different. Competence of the state regulators arguably is lower than that of the Fed. Whether or not one wants more regulation — and generally, I don’t — but is this a stable situation? How’s it going to evolve?…

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