Five years ago the extent of credit losses was the biggest risk for investors looking at financials, today regulation risk is the unknown

Five years ago the extent of credit losses was the biggest risk for investors looking at financials, today regulation risk is the unknown. According to Uday Chiruvu, of PM Capital, as credit markets across the globe have improved the questions investors need to understand are around the minimum capital levels and leverage ratios banks will need to have. Regulators are looking to increase capital requirements for banks assuming that this will allow funding costs to come down. Chiruvu believes that this is not the case and there will be a point where funding costs won't drop any further. Regulators will realsie this and ultimately capital requirements will need to come down to allow banks to start trading above their book value. For the longer term this provides an opportunity as many banks in Europe and the US are currently trading below their book values. Details here