The new liquidity rules will make deposits a strategic source of funding. Retail banking stands a good chance of reclaiming its role as the bedrock of banking. Insurance companies, facing higher capital requirements and ageing demographics, will be under pressure to boost returns on investment and enhance asset-liability management. Many of them will be motivated to access new and under-penetrated markets, and seek higher yielding investments within the constraints of regulations and their mandates. Exchanges will continue to consolidate and adopt a “multi-asset class” approach. Companies will explore other avenues for raising capital, including private placements. There will be more standardised derivative products and new types of market infrastructure: central counterparties for clearing, trade repositories for reporting, and swap execution facilities for trading. High-volume, low-margin platforms will likely become more competitive. A big unknown is the future of long-term finance. •  First, banks are likely to play a reduced role in providing long-term financing, especially for infrastructure. Basel III will raise the cost of issuing long-term corporate and project finance loans above the cost of issuing mortgages and short-term loans. •  Second, insurance companies may be discouraged from investing in long term assets, as a possible consequence of Solvency II. •  Third, institutional investors such as pension funds and endowments often face restrictions on portfolio allocation that discourage them from providing long-term financing.

•  Solvency II will raise requirements on capital adequacy and risk management for European insurance companies, and shape the development of risk-based capital frameworks for insurers in other jurisdictions. •  New capital markets regulation will transform the over-the-counter (OTC) derivatives trading business, with mandatory reporting, central clearing, and margin requirements for non-centrally-cleared contracts. •  Additional capital charges and closer supervisory intensity will be applied on the so-called G-SIBs, or global systemically important banks, as part of efforts to address the “too-big-to-fail” problem. Some regulatory initiatives will impinge directly on the structure of financial institutions. Many jurisdictions are pushing for local incorporation of institutions, especially if they are systemically important. In America and Europe, regulators are reviewing various proposals for separating or insulating retail banking from riskier activities. Third, the centre of gravity of financial activity is shifting towards Asia. •  The IMF forecasts that, in the next five years, emerging Asia will grow by about 7% per annum, nearly three times faster than the 2.5% forecast for the advanced economies. BIS central bankers’ speeches  1  The financing needs of companies and individuals in Asia will grow in tandem. Infrastructure investment needs alone will amount to a staggering 8 trillion US Dollars over the next decade. There is opportunity to mobilise Asia’s large pool of savings to meet these financing needs. But this transmission is not working as well as it should, because financial markets in Asia are still under-developed and fragmented.