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We at PIMCO hope, for the sake of our clients and investors everywhere, that banks will recognize the importance of the EDTF's recommendations as well as their potential to reduce credit spreads on bank bonds and equity risk premia on bank equities. Greater disclosure can bring more efficient markets and with them the likelihood of more reasonable pricing of the bonds and equities that banks issue. These advances should bring more efficient allocation of capital – a clear benefit for our clients but also ultimately can be a great benefit for the broader economy as banks regain more regular access to the unsecured debt markets. It will take time for banks to adopt these recommendations, but as they do, we expect that the stubbornly high risk premium on bank securities should fade.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2014, PIMCO.
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