Bangkok--22 Jan--Standard & Poor's
After two years of turbulence in the global economy and financial markets, it appears that nearly everyone--from corporate leaders to heads of state to regulators and individuals--is searching for clues about what will fundamentally be different in the future, said an article published today by Standard & Poor's Ratings Services, titled "The New Normal: Fundamental Changes And The New Face Of Finance." While this search for a "new normal" may be fraught with uncertainty, we believe that it's useful to contemplate what may be to come, with clearer hindsight into the events that led to the recent financial crisis.
On the broadest scale, we believe that it will be difficult for the world and U.S. economies to grow as fast over the next decade or so as they have in the recent past. Even as consumers and corporate finance officers become increasingly frugal, governments will likely borrow more, ultimately pushing interest rates higher. Amid this, Standard & Poor's expects a shift in global economic dynamics--among them a somewhat diminished position for the U.S. (and the dollar), while countries such as China and India become more prominent on the world economic stage.
In the U.S., we're seeing a swing toward more regulation, as banks, borrowers, and various government agencies try to strengthen a financial system that became laden with leverage in the years leading up to the credit crisis. Global financial market regulators also are in the process of creating a system that may result in higher capital requirements for banks, limits on the use of capital instruments such as some derivatives, and greater emphasis on managing liquidity.
We think that banks will generally be among the entities most affected by this changing landscape. We expect financial institutions, especially those in the U.S., to return to building solid, sustainable sources of deposit funding as they reduce continued reliance on complex structured securities.
Whatever the speed and depth of change in the near term, the eventual evolution of a global economic environment that is dictated less by the U.S. and more by a surging Asia may be the most profound change that will define the future. To be sure, a still-fragile recovery and shifting dynamics in the financial system mean that a new normal may arrive in fits and starts. Nonetheless, in our view, any diminished role of the dollar, the potential for the globe's financial center to shift to Asia, and what could be a new era for financial regulation could make the next couple of decades a stark contrast to the past decade or two.
This article is part of a special report titled "The New Normal," which also will be published in the Jan. 27, 2010, edition of Standard & Poor's CreditWeek. The special report examines how certain industry sectors and financial markets may fundamentally change as a result of the recent credit crisis.
The reports are available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-7280 or sending an e-mail to
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Analyst Contacts:
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Jayan U Dhru, New York (1) 212-438-7276
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