UNIVERSITY COLLEGE CORK

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Thecreditcrunchof2008andtheresultantturbulenceinsecuritiesmarketshavethe potentialtofundamentallyalterboththestructureandgovernanceoffinancialmarketsina greatermannerthananyeventssincethoseofthe1930sgreatdepression. Inthecontextoftheabovestatementoutlinetowhatextentyoubelievetherecentturmoil inmarketsislikelytoshapethenatureoffinancialmarketsinthefuture.|

DanielSpillane BScAccountingIV 107375719 LecturerDavidHumphries 14/01/2010

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Introduction
The 1930s great depression had devastating effects on virtually every country. The US saw unemployment as high as 25% (Frank & Bernanke, 2007) and an average of 2000 banks failing per annum (Lo, 2009). The effects of the great depression lead to the Glass-Steagal Act of 1933 and the formation of the Federal Deposit Insurance Corporation (FDIC). These policies served their purpose, they provided a sufficient oversight of commercial banks. However they failed in managing systemic risk in the shadow banking system. (Lo, 2009) By shadow banking, one means hedge funds, investment banks, pension funds, endowments and foundations. The financial crisis of 2007-2008 is likely to become the most far reaching dislocation of global markets in recorded history (Lo, 2009). Global output has dropped in the region of 6-7%, in the USA unemployment remains high, 9.6% in September 2010 with core consumer prices rising a mere 0.9% for the year 2010 up to August (FT, 25/09/2010). According to the IMF in their Global Financial Stability Report for April 2009, the total value of banking write downs in those countries worst impacted by the crisis is estimated to be in the region of $2.3 trillion.1 In the United States $204 billion has been written off residential loans held by banks and $166 billion written off residential mortgage securities. Similarly UK and Euro zone banks have written off foreign loans to the extent of $203 billion and $442 billion respectably. Due to the systemic importance of such institutions, the crisis is likely to transcend every major market centre in every major country (Lo, 2009). In general it has fallen on the tax payer to provide extraordinary support measures to those institutions which are considered as too big to fail. On 29/09/2008 the Irish government guaranteed approximately 458 billion ($659 billion) (NTMA), a fortnight later on 11/10/2008 Australia announced a bank guarantee of $700 billion (Swan, 2009). Given the extent of write-downs in private debt, it is the public sector that, in many cases is faced with the burden. As fiscal balances demise and public debt accumulates it is no surprise that we have seen a rise in sovereign vulnerabilities. Naturally given the impact the crisis has had on society, there is intense pressure for a reform of the financial system and the direction this reform should take is some way clear. The IMF Global Financial Stability Report in April 2010 outlined three key issues which the financial system needs to address. 1. Reduce sovereign vulnerabilities, including through communicating credible medium fiscal consolidation plans. 2. Ensure the ongoing deleveraging process unfolds smoothly. 3. Decisively move forward to complete the regulatory agenda so as to move to a safer, more resilient and dynamic global system.

Although this is a reduction from the $2.9 trillion estimated in October 2009, indications that the crisis is

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Approaching the three areas above is widely considered to be the best corrective action to crisis. What is still very ambiguous is the magnitude of this reform and how exactly the three areas above are to be addressed. We are still uncertain as to how complex issues such as the following are to be addressed 1. 2. 3. 4. 5. 6. Systemic risk Regulation of financial institutions The future of the Euro currency Supervision hedge funds Supervision of Over the Counter (OTC) instruments The role of Credit Rating Agencies.

One thing is certain; the time period available for effective reform is a brief one. Many economists have put forward ideas and models attempting to make the financial system safer while maintaining its efficiency. I will look at some of these as they give an insight as to how financial markets may be shaped in the future. However one cannot underestimate the impact that politicians have, or rather the ability of self interested lobby groups and the electorate to influence the decision making process. Some areas restructuring may involve painful decisions in the short run. The impact politics will have on the application of the three issues outlined by the IMF is likely to be the primary influence on the magnitude of financial reform and the shape of future markets.

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A reduction in Sovereign Vulnerabilities

As mentioned in the introduction, the cost of bank support mechanisms has lead to a decline in fiscal balances and an increase in public debt. Essentially the credit crisis has moved into its next phase as a result of the credit bubble. The global risk profile has been altered with G7 members sovereign debt levels are nearing 60 year highs (IMF, 2010, FIG. 1.5). As sovereignties take on the risks of financial institutions, it is not surprising that concerns have been raised regarding their long term funding ability. This in turn has lead to the short term funding crisis suffered by Ireland in November 2010. Similarly, despite what has been claimed as a successful bond issue in January 2010, Portugal still have a lot more debt to sell in 2011 and face a potential funding crunch in April (Wissenbach & Khalip, 2011). The credit crisis at a sovereign level is by no means over and will only have a negative impact on the recovery of public debt. According to the IMF Global Stability Report what is needed is medium term fiscal consolidation plans which command public support. Nowhere is fiscal reform required more than in the peripheral Euro zone economies that have, or are, facing a short term funding crisis. Euro zone countries have a history of bending the rules in an attempt to achieve the outcomes most politically favourable. In 1997, many member countries used creative accounting in an attempt to get to the 3% budget deficit GDP ratios required by the union (Valdez, 2000). Such was the political will to adopt a common currency as fast as possible. Perhaps it is this lack of political strength and unity that has contributed to the current crisis. One of the major criticisms of the EMU in its formation was its tendency to ignore different financial conditions. For instance, before the introduction of an EMU interest rate, Ireland had a rate of 6%, this was in place as an attempt to curb the risk of rising inflation during the Celtic Tiger (Valdez, 2000). According to Valdez, Ireland needed the new EMU rate of 2.5% like a hole in the head. Not much has changed, the EU Stability and Growth Pact ignores different economic conditions. Had it been introduced earlier then perhaps it may have prevented woes in Greece, Ireland and Spain. It is not an understatement to state that the Euro zone is facing a crisis, both economically and politically. The current Lisbon treaty is incapable of dealing with the legal and political complexities of an institutional crisis mechanism. The crisis has exposed the limitations of the monetary union and the European Central Bank (ECB). The ECB needs a credible fiscal back-up if it is to serve its role as a lender of last resort (Valdez, 2000). Was it to be an independent fiscal authority with independent tax and borrowing powers, it may achieve this. Unlike the Fed which is backed by the Department of the Treasury or the Bank of England which has the support of Her Majestys Treasury, one is not exactly sure who supports the ECB. Is it a combination for the 17 Euro zone treasuries, or perhaps the treasuries of the 27 member states? Had the ECB the power to make fiscal decisions then perhaps investors would regain confidence in the Euro zones ability to deal with sovereign crisiss. Even had it this fiscal backing however, I would be unsure of the ECBs desire to take on excessive credit risk akin to what the FED has done in recent months. The ECB is modelled on Germanys Bundesbank, who prior to the creation of the Euro, had the primary task of protecting the currency (Valdez, 2000). The reasons for this are historic; Germany has a history of currency devaluation and hyperinflation. In 1918 a loaf of bread in Germany cost 18 pfennigs; by 1923 it was 200,000 DM2 (Valdez, 2009). One suspects the ECB may be less willing to adopt the riskier method of the FED.

ItwastheReichsmarkasopposedtotheDeutschmarkwhichwascurrencyofGermanyin1923.Howeverthe referencestatesDMandatanyrateitisaminorpoint.

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In the short term, some form of institution is required to replace the European Financial Stability Fund (EFSF) which is due to run out in 2013 (Munchau, 2010). Many feel the current EFSF is not large enough. The fund currently pledges 440 billion, but of this only 250 billion is realistically available to lend, as the rest must remain as a capital buffer in order to maintain a topnotch credit rating (Wissenbach & Khalip, 2011). According to some EU sources there is the possibility of extending the fund; however such an extension may require parliamentary approval in Germany. There are calls to a whole new institution, akin to the EFSF but significantly larger; so as to quell market fears of the EUs incapabilitys to rescue its members. However if such an institution requires a power shift to Brussels from the member states, then it will require a referendum in Denmark and Ireland. At the moment there is no appetite for another treaty change. Why would there be after the debacle of Lisbon! Similarly if this institution is to provide the bail out mechanism Europe requires it may well be deemed unconstitutional by German courts (Munchau, 2010). The EU must address its current sovereign vulnerabilities, however as I have explained above, even an interim solution, such as the creation of a new or even a restructured EFSF faces difficulty at the political level. In many respects it is a political anomaly, the alternative to a larger EFSF may be more IMF lead bail outs of sovereign states. Bail outs are almost as disastrous politically as they can be economically. In Ireland the bailout of November 2010 has been likened to a loss of sovereignty; We fought hard for our independence and we should not hand it away, said Eamon Gilmore, leader of the opposition Labour party (Gardner, 2010). Similarly in Portugal, where a presidential election is to be held on 23 January, the threat of an IMF bailout and the memories of the IMFs interferences with the country in 1974, are been used by both the main parties to discredit the other (Wissenbach & Khalip, 2011). As I mentioned above, Europes problem is a lack of political unity and a failure to address local economic needs. While drastic reform is certainly required it runs the risk of being too late, cumbersome and inefficient.

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Ensure the ongoing deleveraging process unfolds smoothly.

In order to achieve a well functioning banking system, the ongoing deleveraging process of the assets of financial institutions must continue. The excess credit risk taken on by certain entities is one of the root causes of the current crisis. According to the OECD, banks had leverage ratios of 1217/1, while the large investment banks were in the region of 20-33/1 (Shabab, 2009). The leverage ratio for Lehmann Brothers for the quarter ending 29/02/2008 was 34.9/1 (Lo, 2010). Alan Greenspan has done very well for himself since retirement, earning huge fees for speaking. However as governor of the Fed, he saw subprime loans rise 451%3 from 2001 to 2005 (Lo, 2010). The deleveraging process should be smooth, financial institutions are still very fragile and the process must not impose further strain on the global economy. According to the IMF Global Financial Stability Report Apr 2010 the health of the global banking system is recovering relatively well. By the end of 2009 $1.5 trillion of bank write downs had been realised. In April 2010 the IMF reassessed their estimates for the total amounts of these write downs from $2.8 trillion to $2.3 trillion. Some countries still remain capital deficient mainly due to commercial real estate. Financial institutions in these countries still face challenges in short term funding. More losses still remain to be written down and as a result lower profitability can be expected. Basle III demands banks to carry more capital and less risky assets, this will pose another challenge to the financial system. We are yet to see the effectiveness of Basle III, but in terms of deleveraging the financial system it seems to address the key issues. Raising quality and quantity of capital so as to ensure that banks are better able to absorb losses on a going concern and gone concern basis. The common equity requirement for banks is to be raised to 7%, with a common equity requirement of 2% to 4.5% and a capital conservation buffer of 2.5% Introduction of minimum global liquidity standards bolster bank liquidity. The liquidity coverage ratio is to ensure banks have sufficient high quality liquid assets so as to withstand the stressed funding scenario specified by supervisors. A longer term Net Stable Funding Ratio is designed to address liquidity mismatches.

There are other aspects of Basle III and we shall revisit again in this document, however the above are aimed at deleveraging financial institutions and ensuring that they are able to withstand any future market declines. There is going to be some opposition to the proposals set out in Basle III. According to the IMF, from 2010 to 2013 there is an expected $5 trillion of bank debt due as a result of a fall off in government support measures. Which such volumes due, banks are somewhat unwilling to embrace Basle III. Higher and better quality capital requirements will improve the leverage position of banks, although at least part of the cost is going to be passed onto lenders thus leading to a decline in private lending and economic activity. Obviously those in the Bank for International Settlements feel that the small decline in economic activity is worth it, if it leads to a more secure global banking system. The new regulation is significant and it should see a reduction in the leveraging position of financial institutions and thus a better functioning and safer global banking system. This is what policy makers need.

From$624000to$3440000

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Decisively moving forward to complete the regulatory agenda so as to move to a safer, more resilient and dynamic global financial system.
New regulatory reform needs to be introduced in a manner that accounts for the current economic and financial conditions. It is already clear that reform will 1. Make the financial system safer. 2. Improve the quality of capital. 3. Improvement in liquidity management and buffer. These areas have already been discussed in the previous part of this document with reference to the deleveraging of the financial system. However the current market turmoil was a combination of issues, we shall discuss the likely impact reform will take in the following areas; 1. 2. 3. 4. 5. 6. Management of systemic risk Compensation Packages Regulation of Over the Counter (OTC) instruments Supervision hedge funds The role of Credit Rating Agencies. Financial education

1. Management of systemic risk.

The IMF defines systemic risk as the large losses to other financial institutions induced by a failure of a particular institution due to its interconnectedness. Systemic risk needs to be monitored, not only does it incur impairment in all parts of the financial system; it can also have serious adverse effects on economic activity. Andrew W. Lo (2009) describes systemic risk as a public good, akin to defence or law enforcement. Thus there is an onus for government to regulate it using taxes, disclosures, government provisions and securities regulation. With the political will to address the problem, there are a flood of reform proposals as to how the systemic risk of financial institutions, markets and other instruments should be managed by national authorities. However there is political uncertainty as to how it is going to be applied. The following measures are all being discussed: Qualitative and quantitative indicators are required to assess the systemic importance of financial institutions at a global level. The Basle committee is also considering introducing systemic risk based surcharge determined by an institutions contribution to systemic risk. It is considered that there should be a mandate so as to oversee systemic risk. Tougher supervisory standards and restrictions on Too Important to Fail Institutions.

The final point above highlights the biggest difficulty of imposing systemic risk. Institutions which are considered too important to fail not only bear a systemic risk but also a moral hazard problem. If failure looms and creditors consider themselves shielded from any loss, then borrowing costs will remain low and this in turn encourages excessive leveraged risk taking. The IMFs defines these firms as those believed to be so large, interconnected or critical to the workings of the wider financial system or economy that their disorderly failure would impose significant costs on third parties. How exactly are authorities to determine if an institution is so important that their collapse could have a detrimental effect on the economy? The answer still remains uncertain but the time scope to impose

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effective reform to treat systemic risk remains small. Some of these companies are larger now than they were before the credit crisis. The regulatory approach needs to be harmonised on a global level. Not only are these institutions important domestically, but as we saw with the collapse of Lehmann Brothers, their demise can have devastating effects across the globe. The US House of Representatives and US Senate have put forward criteria to indentify the degree of an institutions systemic risk, similarly the UKs Financial Services Authority (FSA) have put forward their own set of proposals. Table A outlines the respective proposals
Table A. Criteria proposed to identify the degree of an institutions systemic risk. (IMF Global Stability Report April 2010)

USSenateandUSHouseof Representatives LongTermStructureof Funding ExtentofLeverage Relationshipwithotherfirms Concentration

UKsFSA Sizeofinstitution Interconnectedness Marketconceptionofcommon exposures

The US approach is firm specific and it does not propose how to combine these factors so as to provide a degree of systemic risk. They also do not seem to address systemic risk on a global level, although Tim Geithner, US Treasury Secretary did say that any institution that will affect the US economy may have to run with a much more conservative and prudent leverage and funding mix (Braithwaite, Guerrera & Masters, 2010). The FSA argue against stringent cut off points, where some firms are considered systemically important and others are not. Such an approach would be cumbersome and could lead to a situation where it may be advantageous for a company to be considered systemically important, thus the regulation maybe counterproductive. However in November 2010, G20 leaders called on regulators to draw up a list of 20 institutions considered too big to fail. It is clear that there is a need to account for systemic risk in the future. The approach is best tackled globally and the approaches of countries such as the US, the UK and Euro zone members must be harmonised. Failure to do so may result in regulatory arbitrage and leave the issue unresolved. Reform is likely to occur at some level, although one would question whether it will prohibit institutions becoming too big to fail.

2. Compensation Packages
With banking systems virtually socialised in some countries and the public sector and tax payers faced with the bill for private sector losses, it is no surprise that the remuneration of those involved has come under scrutiny at a political level. Mah-Hui Lim (2009) argues that change is required in the style of motivating techniques operating in financial firms. He claims that the Economic Value Added (EVA) approach, embraced by the captains of industry and finance and even the public sector, deserves a large proportion of the blame. EVA involves rewarding an individuals performance based on their contribution to profit and nothing else. The sole aim of every worker is to maximise AC4119InterimAssignment

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shareholders value, with other social costs and even the long run welfare of the firm ignored. Thus employees were encouraged to take risks in areas such as securities and derivatives, which yield a high EVA as opposed to perhaps the more traditional approach of lending. The long term welfare of the firm was ignored and employees could move on before the result of their actions may come back to haunt them. Mah-Hui Lims argument is a convincing one, though I am not sure whether much reform needs to take place in this area. Richard Fuld former CEO of Lehmann Brothers was painted by many as the scapegoat for the crisis, one congressman claimed he was the villain today. (Fishman 2009, cited in Shabab, 2009). Lehmann used pay bonuses in stocks, often conserved for five years. Thus despite what Man-Hui Lim argues, staff, rationally speaking, should have had some concern for the future well being of the bank. As for Fuld, he lost near $1 billion with the collapse of Lehmann as he held 10,000 shares in the bank (Shabab, 2009). Perhaps hubris, the belief that the worst will never happen as opposed to the compensation schemes is more to blame for the crisis. That said one would imagine temporary reform of such payment schemes will be encouraged on a political level. While it was not one of the major causes of the crisis, it is certainly one of the softer targets for politicians.

3. Regulation of Over The Counter (OTC) instruments

OTCs such as Credit Default Swaps (CDS), when used as a financial insurance product are inherently flawed and need to be more tightly regulated. Buyers of CDS protection do not need an insurable interest to acquire protection (promoting adverse incentives) and nonbank sellers are not regulated or required to hold loss reserves (false sense of protection) (IMF, 2010). OTCs were exempt from regulation in the Commodities Futures Modernisation Act 2000 in the US. One solution is to beef up the market infrastructure to be able to oversee the use of such opaque instruments. The most widely acknowledged solution is to move OTCs to a Central Counter Party (CCP). Such a CCP would need additional collateral so as to support the trading of OTCs, thus the transition, were it to take place would be transitional. Along with this the voluntary movement will be low, as a CCP for OTCs could put downward pressure on an important revenue stream for financial institutions. Thus regulatory encouragement of some shape or form is required. In the US the issue of a CCP for OTCs is addressed in the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on 21 July 2010 (Thomas, 2010). Title VII of the act encourages OTCs derivatives to be traded in central clearing houses. While the US has dealt with this issue to some degree, questions remain as to whether Europe will follow. A united front on derivatives is required, so as to prevent regulatory arbitrage and market participants shopping around. Brussels issued its proposals for dealing with OTC derivatives in September 2010 and they are closer to the US Dodd-Frank Act than many expected. Initial worries regarding the opposing political views in the EU Parliament (Grant, 2010) were quelled when the EU financial supervision reform package was passed on 22 September 2010 (ESMA) and the European Securities and Markets Authority (ESMA) formed on the 1 January 2011 (ESMA). The regulation of OTCs is extensive and the approach authorities have taken to mend the gaping holes in regulation is impressive. Whether or not regulators can get to grips with such opaque instruments remain to be seen, however the problems of valuing the exposure of counter parties seems to have been addressed.

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4. Supervision of Hedge Funds

Similar to OTC derivatives, the Dodd-Frank Act introduces significant regulation of hedge funds (Thomas, 2010). A number of issues relating to hedge funds have concerned authorities for some time; Measuring leverage due to the opaqueness of derivative products. Controlling counter party risk and thus limiting contagion. Limiting the herding effect and preventing panic under stressful market conditions.

This crisis is not the first time hedge funds have come under scrutiny. In light of the LTCM scandal in the 1990s, The Times reported The term hedge fund is a lie, because the business of these funds is to take risks, not to cover them. Risk is not necessarily a bad thing, Hedge Funds have provided the essential funds to many growth performing projects around the globe. In light of the current crisis, Shabab (2009) claims Hedge Funds only had a small part to play; Hedge funds still outperformed the regulated natural fund sector in 2008, despite a $1 trillion loss. Unlike the banking system they were never in risk of collapsing with an average leverage ratio of 3.9/1. (Shabab, 2009)

Another issue with regulating hedge funds is that their business model is designed around not having to disclose their investment proceeds and processes, so as to prevent competition. If they are forced by authorities to disclose such information, they will either cease to exist or move to more regulatory friendly locations, such as the Cayman Islands (Lo, 2009). Whether or not hedge funds contributed to the current crisis on a scale that deserves vast reform is open for debate. However as with OTCs, under regulated areas of the financial system are catalysts for future market turmoil. The reform proposals outlined in the Dodd-Frank Act, which in general require more disclosure to regulators, must be mimicked in Europe. One would be confident they will be, given the progress made by Brussels to adopt similar measures in treating with OTCs.

5. The role of Credit Rating Agencies

Credit Rating Agencies are the biggest uncontrolled power in the global financial system, and thus in the national financial system too. These were the words of the President of the Federal Financial Supervisory Authority as early as 2003 (sited in Utzig, 2010). Credit Rating agencies do admit they deserve some portion of the blame for the recent turmoil in global financial markets, though they are careful to point out that, policy makers and market participants were just as liable. In November 2008, state regulators at the G20 summit in Washington acknowledged that regulation of Credit Rating Agencies could no longer be avoided. A number of models have been proposed however the following issues still remain be treated;

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Better Corporate Governance. Elimination of conflicts of interest between ratings services and financial advice services. An increase in competition, attempting to break the oligopoly positions of Standard and Poors, Moody and Fitch. Credit Rating Agencies to take some responsibility for their actions.

The first two have a decent chance of being achieved, especially with new EU Regulation on Credit Rating Agencies. The oligopoly held by the large Credit Rating Agencies is unlikely to be broken up while the issuer pays model remains ie. The entity who is selling the security pays for its rating. The alternative is an investor pays approach. Seeing as investors genuinely want an honest rating, this should address the problem of inflated ratings, although it creates a free rider problem (Utzig, 2010). Credit Rating Agencies would adopt the argument of the Larosiere group (2009), that the use of ratings should never eliminate the need to those making investment decisions to apply their judgement (sited in Utzig, 2010). To this extent they have a point, although perhaps they could further reduce responsibility by disclosing the models and techniques they use to come up with their ratings. The European Commission and Parliament is driving the reform process of credit rating agencies in what they see as a failing of the Anglo-Saxon financial system. However, as we can see above some tricky obstacles lie in there way. Extensive reform of these agencies is likely to occurs, with many quarters claiming that such institutions were the cause of the crisis.

6. Education
Politicians, regulators and the leaders of business and finance are known for lamenting about the publics ignorance to financial affairs, and with good reason. A survey conducted by researchers at the University of Buffalos School of Management on the financial and economic knowledge of a typical group of high school seniors produced startling results. Only 14% understood that stocks were on average more likely to generate a greater return over eighteen years than a US government stock (Ferguson, 2008). The authour continues to say that the proportion of respondents who could describe the difference between a CDO and CDS would be quite low. Such ignorance is indeed worrying in a society where individuals are encouraged to maintain there own finances. Similarly, such a lack of economic and financial knowledge can have adverse effects on times of economic crises. Words such as hedge funds, deleveraging or systemic risk can generate fear among the public, naturally because people do not know whats going on, but realise it may have an adverse impact on them. Such fears can be a catalyst for action which may be politically driven as opposed to economically rational. On a similar note, one would have to question if some of the leaders of finance have the appropriate educational background in their field. Lo (2009) suggests that senior management should require certificates in financial engineering if they are to hold a governing role over a financial institution. He also proposes basic economic and financial reasoning and risk management be introduced to children at the age of fourteen of fifteen. Whether such educational reform will take place remains to be seen, though it is a novel idea. Given the media coverage of the current crisis, a lot of people have educated themselves somewhat in areas of financial, although there views may be tainted.

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Conclusion
Financial reform is needed, in the words of famous word of Margaret Thatcher its TINA There Is No Alternative! In light of the quotation which accompanied this assignment, it is likely to alter both the structure and governance of financial markets in a greater manner than any events since those of the 1930s. Acts such as the Dodd Frank Act are likely to affect almost every area of the financial services system in the US. Similarly in Europe, the structure the Euro zone is to take in the coming years will undergo vast change, if it does not then the future of the currency is in jeopardy. The political outfall from the crisis is still to be determined and views have changed significantly in the past three years. Governments in countries worst impacted by the global crisis have witnessed a demise in public support. While on the one hand they attempt to impose stricter regulation, on the other they face a political points match at every stumbling point. Globalisation, the economic and political mega trend of the past decade is being debated once again. In Britain, the new coalition government has vowed to reduce immigration from ten of thousands a year to hundreds. Barack Obama, on a recent trip to India warned his hosts that the debate of globalisation had reopened in the west. As all the worlds major powers aim to export their way to recovery tensions are growing. All the subjects I have discussed in this document outline what should happen and plausible reasons why political interferences may prevent this. Institutions such as the IMF, Fed and BIS along with individual economists have proposed reform. However a lot of these are yet to be imposed by regulators. Thus it is fitting to finish by looking at the words of Niccolo Machiavelli in The Prince: there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things. The reason is that the innovator has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well in the new.

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