Current macrofinancial environment As many of you have no doubt noticed, it is currently a very constructive environment for financial institutions. Flow trading and market making have become more attractive and intermediation spreads have increased. Underwriting fees have recovered along with the capital markets; and there are very early signs that an appetite for mergers and acquisitions has returned.
Banks are once again being compensated for their basic businesses of providing liquidity and credit. Interestingly, despite the fall in measured volatility, industry VaR, while down from the peak earlier this year, is still above pre-Lehman levels. What is perhaps less evident is that these returns are largely the product of public policy.