It is unusual for large parts of the capital markets to shrink sharply. Yet that is what is happening in the ­global structured finance markets. This year alone, forecasters predict there will be at least $400bn less of structured finance swirling around the global ­financial system than in 2009. This shrinkage will continue for the foresee­able future, according to analysts at JPMorgan. It will include asset-backed securities, which repackage vehicle and credit card loans, commercial mortgage-backed securities, residential mortgage-backed securities and collateralised loan obli­gations, which turn bank loans into bonds. There are three main reasons behind the decline: • the disappearance of special investment funds fuelled by leverage that were huge buyers of ­structured bonds; • loss of trust in credit ratings after hundreds of billions of dollars of “safe” triple A bonds proved virtually worthless; • and the demise of bond insurance that guaranteed debts and boosted ratings to triple A levels. A broader question is also being asked: do even the biggest and most “sophisticated” investors need to be protected by regulations that would limit the kinds of products banks can sell them?