A Necessary Crisis: A Tale of Woe on the Path to Interest Rate Normalization

Executive Summary

Post 2008 crisis, central banks and governments around the world mobilized to revive and stimulate the world economy back on track. Unfortunately the tools used didn’t fix the economy for long-term growth, but rather plastered it over to delay a collapse.

We believe another financial collapse is coming, despite the rally in commodities, namely oil, and financial shares after the January 2016 sell-off.

In a new report, Opimas takes a look at the coming catastrophe. We foresee that banks and investment firms will go under, and some highly-rated countries will default. We formulate a plan and playbook enabling the financial services industry to respond to and even prosper in the crisis, whether on the sell side or buy side. We also have advice for policymakers.

Basically in their rescue operation, officials swelled asset values by flooding the economy with cheap money and with low interest rates tempted lenders to make high-risk loans for a pay-off.

Now, banks are struggling with a grim combination of low return on equity, even lower return on risk weighted assets, and uncompromising regulatory scrutiny and uncertainty.

Most banks in Europe trade at or below tangible book value. The situation in the US and Asia is not much better, even after the rally. This has led some analysts to question the very fabric of the banking business model, economic growth, and financial stability.

 

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