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One of the biggest challenges to the banking industry following interest rate hikes is the increased cost of borrowing. Over the past decade, following the 2008 financial crisis, companies were able to borrow cheaply off of low interest rates. Because of the macroeconomic factors and geopolitics, this has drastically changed, and now companies are not able to service debt as easily as before. This couples with the risk of defaulting. We currently saw the series of mid-size regional banks go under (e.g. Silicon Valley Bank). This has prompted banks to tighten access to loans, both B2B and B2C, as well as tighten trade between banks because of the risk of a fellow bank defaulting and impacting its own finances.While this may be decrease the level of investment of companies, it alternatively may cause an increase in currency (forex trading). One example is the carry trade Berkshire Hathaway conducted on the USD/JPY currency pair through the issuance of Yen bonds. This allowed BH to ride the currency as it got stronger. This could see other commercial players increasing foreign investment and their role in the forex market. Especially with countries such as Latin America experiencing stronger currencies than the GBP.There are endless facets of the commercial legal sector that are impacted by the current economic climate. While we have seen a decrease in M&A growth, recent announcement of mergers between A&O and Shearman & Sterling, and Vodafone and Three, show companies willingness to invest in undertakings that will drive profit in the long-term. Because of the jump in mortgage rates, commercial real estate is likely to stagger in growth but may encourage project finance and investment into developing countries. Employment and pension lawyers will look at the effect on wage growth and ESPPs and pension schemes (and their security in the event of insolvency).
One of the biggest challenges to the banking industry following interest rate hikes is the increased cost of borrowing. Over the past decade, following the 2008 financial crisis, companies were able to borrow cheaply off of low interest rates. Because of the macroeconomic factors and geopolitics, this has drastically changed, and now companies are not able to service debt as easily as before. This couples with the risk of defaulting. We currently saw the series of mid-size regional banks go under (e.g. Silicon Valley Bank). This has prompted banks to tighten access to loans, both B2B and B2C, as well as tighten trade between banks because of the risk of a fellow bank defaulting and impacting its own finances.
While this may be decrease the level of investment of companies, it alternatively may cause an increase in currency (forex trading). One example is the carry trade Berkshire Hathaway conducted on the USD/JPY currency pair through the issuance of Yen bonds. This allowed BH to ride the currency as it got stronger. This could see other commercial players increasing foreign investment and their role in the forex market. Especially with countries such as Latin America experiencing stronger currencies than the GBP.
There are endless facets of the commercial legal sector that are impacted by the current economic climate. While we have seen a decrease in M&A growth, recent announcement of mergers between A&O and Shearman & Sterling, and Vodafone and Three, show companies willingness to invest in undertakings that will drive profit in the long-term. Because of the jump in mortgage rates, commercial real estate is likely to stagger in growth but may encourage project finance and investment into developing countries. Employment and pension lawyers will look at the effect on wage growth and ESPPs and pension schemes (and their security in the event of insolvency).
