The risk of another recession and a renewed banking crisis is top of mind with banking executives, according to a new survey of the issues currently facing the global banking industry.
The London-based Centre for the Study of Financial Innovation’s (CSFI) Banking Banana Skins survey, produced in association with PwC puts macro-economic risk at the top of the list of 30 possible risks to banks.
“While Canada may be better prepared to handle some of these risks, the issues are intertwined with the global banking system. Everyone is concerned about contagion from more troubled economies, particular in the United States and Europe,” says John MacKinlay, national leader of the financial services consulting practice for PwC in Canada.
Most of the top risks identified by Canadian respondents were in line with those in the global ranking: macro-economic risk, funding issues and regulation. ‘Capital availability’ is also one of Canada’s top five issues whereas two years ago it was ranked 24th. “No one wants to see an environment with tightened liquidity as this could put the brakes on our recovery,” MacKinlay says.
Canadian respondents have major concerns about regulatory risk, particularly since the largest banks have sought opportunities outside of Canada (and are subject to tightening regulations in other countries). The level of resources required to deal with the volume of regulation could have adverse affects in terms of competitiveness or unintended increased risks in the system, says Diane Kazarian, partner and national leader for the banking and capital markets industry practice at PwC.
The poll also shows that anxiety about the outlook for banks is at its highest level since the survey was started 13 years ago. Many respondents expected to see further bank failures and nationalizations. 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 Canada, U.S., China, Argentina and Australia put the euro crisis at the top of their list of concerns.
For the first time, the Banana Skins survey shows the risk outlook to be better in the emerging economies than in the industrialized world. Respondents from regions such as Latin America, Africa, Asia and the Far East ranked their prospects more positively than North America and Europe thanks to stronger growth, though they felt vulnerable to global banking shocks.