Recession, more bank failures highly likely – poll

The risk of another global recession and a renewed banking crisis is high, according to the latest annual global survey conducted by the UK-based Centre for the Study of Financial Innovation (CSFI).

The poll, produced in association with PwC and entitled “Banking Banana Skins”, shows anxiety about the outlook for banks is at its highest level since the survey was started 13 years ago, and many respondents expect to see further bank failures and nationalisations.

The findings, based on responses from more than 700 bankers, banking regulators and close observers of the banking industry in 58 countries, put macro-economic risk at the top of 30 possible hazards for banks.

The main cause of anxiety is the eurozone crisis which contains the threat of sovereign default by several countries. The shock of a euro collapse would hit banks not just in Europe but in all major regions of the world. Bankers in countries as far apart as the US, Canada, China, Argentina and Australia put the euro crisis at the top of their list of concerns.

The first consequence of a crash would be large credit losses, which appear at No. 2 on the list. But these would be followed by a funding crisis with banks cut off from access to liquidity and fresh capital (No. 3 and 4).

Complicating the picture is the increase in political interference (rated at No 5) and regulation (at No 6) of the banking industry. Although regulatory initiatives are intended to bring about a solution to the banking crisis, they are also adding cost and distraction to banks, and making it harder for them to supply credit to the economy.  

Concern about the ability of banks to manage their way out of the crisis is also high: weakness in corporate governance (in 9th place) and risk management (10th) are both seen as Top Ten risks. A fast-rising risk is business continuation (up from No. 21 to No. 12), i.e. the ability of the banking system to survive the failure of a major financial institution.

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