SocGen's Oudea: Bank Retreat From Market Making To Continue, Raising Liquidity Concerns

Jul 7 2015 | 2:43pm ET

(Reuters) - Banks will keep pulling back from market-making in the face of tougher regulations, hitting liquidity for investors, Societe Generale Chief Executive Frederic Oudea said on Tuesday.

Under tougher rules aimed at making the financial system safer since the 2008-2009 crisis, it has become more expensive for banks to maintain large inventories of securities to meet clients' demand for stocks, bonds and derivatives.

Speaking at a financial sector conference in Paris, Oudea said that banks still were not seeing the full impact of new regulations.

"I tend to think that inventories will continue to shrink, which means of course you have a problem of price mechanism formation and of liquidity," Oudea said.

He added that as a result central banks would not only be forced to play the role of market-maker of last resort, providing liquidity when commercial banks could not, but also in normal times.

"We need liquidity in markets because investors will not easily buy particular long-term assets for 15 years just to sit on them," Oudea said.

Some bankers and funds have blamed a lack of liquidity for triggering a spike in borrowing rates in recent months, with European government bond yields jumping as the number of buyers has dwindled.

"If we want to have a capital market that is working well, we need to have a liquid market, (we need) to keep the ability for banks to provide liquidity in markets whenever there's movement," Natixis Chief Executive Laurent Mignon said at the same conference.

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