'Money makes the world go round' - or rather capital markets do. Capital markets are the markets for buying and selling debt and equity securities. They put what savers save to productive use - to make more money. But that may be changing according to PwC as shadow banking becomes more popular.
PwC Ireland's John McDonnell says that the vitality of capital markets is crucial to returning the world to stable economic platform. Capital markets are very important because they finance growing companies as well as finance infrastructure investment but they are also very important because they provide investment returns to individuals, particularly as our population is ageing.
Explaining that shadow banking is an alternative market to a regulated financial market such as banks, Mr McDonnell says it does not have the same level of of regulation as a normal financial institution and "shadows" the financial institution. It provides similar services, but sometimes also provides services to people who do not have direct access to traditional banking.
The Financial Stability Board says that shadow banking already makes up 25-30% of the banking system and Mr McDonnell says it has grown from $26 to $70 trillion in the last decade and is becoming a major part of the capital markets. A survey of major players in the markets believe that shadow banking could grow to up to 35%, but they do not believe it will take over completely from the traditional capital markets.
He says that some gloomy commentators have predicted the end of the capital markets as we know them through over-regulation and shadow banking as well as the fall of major financial centres. But PwC have a different view and see a new equilibrium which appreciates both shadow banking and more traditional capital markets. PwC also believe that the bigger players will get even bigger because they have the economies of scale to deal with the costs of the regulation of the capital markets.
MORNING BRIEFS - Ryanair expects its fares to fall by between 10 and 15% over the next two years as it passes the benefits of lower oil prices to travellers. In a French newspaper interview at the weekend, Ryanair chief executive Michael O'Leary said that in 2016 its average air fare could be €40. He said this will come as the airline passes on lower oil prices. He said the airline will also continue to grow passenger numbers and cut its costs. Mr O'Leary said the average price of a Ryanair ticket is currently €46, which he said compared to around €170 for a short-haul flight within Europe on other airlines.
*** Ulster Bank is set to announce a major debt-forgiveness development by proposing that mortgage holders who are in serious debt - and who qualify for social housing - can sell their properties and the bank will not pursue them for the outstanding debt. For those who don't qualify for social housing and sell their house, the bank will negotiate on the outstanding debt with a view to writing some off.
*** A surge in the US dollar has already wiped more than $20 billion from first quarter sales at the biggest US companies, a sum larger than revenues generated by Intel, Caterpillar or Goldman Sachs in the first three months of the year. We are about half way through the US earnings season, and that figure is likely to jump further. Apple, the world's most valuable company, reports results tonight and it has already warned that the dollar's move could slice more than $2 billion from quarterly revenues.
So far during the current reporting period, General Motors, IBM, Procter & Gamble, Amazon and Johnson & Johnson have experienced $1 billion-plus losses on sales as they translated revenues earned abroad back into US dollar terms. "Top-line growth" or revenues reflect how quickly a business is growing. Big US multinational company's sales have benefited from the combination of a weaker dollar and robust expansion across emerging market economies in recent years. But a sustained rise in the dollar since last summer and weakening global activity has hit on many blue-chip US companies.