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Risk of new banking crisis is top threat

Monday 30 January 2012 – by Karina Whalley

The risk of another global recession and a new banking crisis are the top two threats that the worldwide banking industry is currently facing.

In an annual survey by PricewaterhouseCoopers and the Centre for the Study of Financial Innovation, macroeconomic risk was cited as the greatest danger currently facing the financial industry while new regulations was only at number six.

Over 700 bankers, banking regulators and financial industry experts from 58 countries chose between a list of 30 possible risks or “banana skins” for banks.

The poll, carried out in November and December, revealed that anxiety over the outlook for banks is at an all time high over the past 13 years with many respondents expecting further bank failures and takeovers by the government.

“The picture painted by this survey is very bleak,” said the survey’s editor, David Lascelles.

“It shows a fragile banking system beset by major threats and uncertainties.”

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Concern about bank funding is on the rise again with credit risk, the adequacy of liquidity and capital availability being named as the next major banking threats this year.

“Complicating the picture is the high level of political interference and regulation in the banking industry,” the report, released on Friday said, with these ranked fifth and sixth respectively.

“Although these efforts are intended to bring about a solution to the banking crisis, bankers say they are also adding cost and distraction to the business, and making it harder for them to supply credit to the economy,” it said.

The weight of regulation is seen to be choking lending capacity, the report said and most respondents see it as excessive and a potential risk to the banking system. The risks include higher costs, management distraction and constraints on profitability.

The report found that concerns are “strikingly similar” in the main regions surveyed, including Canada, the US and the UK. The fear of regulatory risk is strongest in North America followed by Asia Pacific and Europe but emerging markets are only slightly more confident than industrial countries about their economic prospects.

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