Investment banks have strong capital adequacy, in particular with respect to their hedge credit fund exposures – some estimates of which are provided below. Ironically, the fastest growing area of new financial products that utilise highly-complex derivative products exclusively lies mostly within the regulated sector. This is the market for “structured products” that are produced by investment banks and sold to retail, private bank and institutional clients. The strong volume growth in this area, particularly in Europe and Australasia, creates ex-ante derivative pricing pressure, and hedge funds frequently take the other side of the trades (reducing ex-post volatility). .
