One of the most fascinating aspects of the current credit squeeze is that it is forcing bankers and their clients to rethink the way they do business.
So while the focus in recent months has been on banks’ exposure to the US subprime mortgage disaster and various associated aftershocks, a more fundamental shift is beginning to take shape in the banking business. In the space of about eight or nine months, two decades of innovation in the financial services business has gone into reverse. The securitisation business has dried up completely and leverage is being withdrawn. Off-balance sheet funding techniques, such as structured investment vehicles, have all but disappeared. And the market for credit default swaps is in such disarray that companies and investors have begun to ignore its price signals.
