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Rajeev Thakkar, CIO, PPFAS Asset Management Co Ltd
Big is no longer beautiful
The financial crisis in 2008 quickly escalated to encompass a broad range of activities. At its worst, banks had stopped lending to one another and corporates and even iconic companies like GE could not borrow in the money markets. Nothing was safe and even money market funds were at risk of defaults to investors. One big change that has happened is that big is no longer beautiful in the financial sector. A lot of firms are now classified as too big to fail and they come with disadvantages like higher capital requirements, stringent supervision and so on.
Another factor which has come into focus has been conflicts of interests between the investment banking division and the research divisions of financial firms. This has led to greater demarcation of roles and higher scrutiny. The cost of capital has come down dramatically across the financial sector given the massive pumping of money in the system by central banks. We have probably seen for the first time in recorded history the concept of negative interest rates and consequently some fear new bubbles are being inflated.
The role of rating agencies has been questioned post the crisis. While at the surface, many regulations have changed, human nature and behaviour may never change and the cycles of greed and fear and the consequent boom and bust cycles may never end.
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