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    Charting the Regulatory Landscape

    US: Will lending bounce back?

    The latest lending survey from the Federal Reserve is the first to capture some post-election sentiment. Caution still prevailed in January, but some banks noted increasing borrower appetite for commercial and industrial loans.

    We are watching: Who replaces Daniel Tarullo? In April an architect of the current regulatory regime steps down, leaving a third empty seat on the seven-member Board of Governors. President Trump’s nominations will be a guide to the direction of Fed policy and US financial regulation.

    Source: Bloomberg, Federal Reserve. As of January 2017.

    Europe: ECB deposits are still outpacing lending

    Lending in Europe remains weak despite negative rates. The ECB’s latest survey showed deposits of households and companies have grown almost 10% since the ECB cut rates below zero in mid-2014, while bank lending is up only around 2%.

    We are watching: A graceful Brexit? The UK’s timing to trigger Article 50, and start the formal two-year process of leaving the EU has likely been delayed to end-March. The House of Lords voted for an amendment to grant Parliament a vote on any deal with Brussels, though this proposal is likely to be overturned.

    Source: ECB, Haver, as of January 2017. Indexed to June 2014=100

    Japan: Japan Inc.’s deal with Abe

    Prime Minister Shinzo Abe’s corporate governance reform includes new rules aimed at increasing efficiency and profitability and encouraging shareholder-friendly actions.

    The Administration’s corporate reform code has led to more independent directors on company boards and added impetus to the unwind of cross shareholdings—which have fallen from over 30% in the 1990s to under 10%.

    We are watching: Will changes in corporate behavior lead to better board structures, better alignment of company objectives and, ultimately, to higher return on equity?

    Source: Based on Tokyo Stock Exchange TOPIX Index as of 2016

    China: Reserves decline has paused

    Interventions to support the renminbi amid strong capital outflows have caused the central bank’s foreign reserves to decline for seven straight months through January, followed by a modest uptick in February.

    China has the world’s largest foreign reserves, but they have fallen by roughly a quarter, to just above $3 trillion.

    We are watching: How low will they go? People’s Bank of China (PBoC) Governor Zhou Xiaochuan has said policy support for the renminbi can be sustained, but we are alert to the potential for more volatility if capital outflows continue.

    Source: Bloomberg, as of February 2017

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