Take, for example, the interplay between the Capital Requirements Directive/Capital Requirements Regulation, which serve to implement the Basel III rules in Europe, and Solvency II: the former seeks, among other things, to place bank funding on a more stable, long-term basis. However, Solvency II may, under certain circumstances, benefit short-dated bonds, impacting insurers’ asset allocation and thus banks’ funding costs. 4.
We say “the first act” because there is a not insignificant chance that next year’s budget deficit will be higher than this year’s, meaning possible added pressure to further increase the balance-of-payments deficit.