Wednesday, 24 February 2010

BANKING BANANA SKINS

I was intrigued to read a recent survey by the Centre for the Study of Financial Innovation that "political interference" is regarded by bankers as the No 1 risk facing banking worldwide.The report describes the risk outlook for the banking industry in 2010, and samples the opinions of 400 bankers and regulators across 49 countries. The prevailing view is that whilst government efforts to rescue banks from the financial crisis may have staved off systemic collapse, the industry is now deeply politicised and this "banana skin" is seen as more risky than others such as credit risk, liquidity, and capital strength. As a risk "political interference" has several angles, including the distortion of commercial judgement,the creation of moral hazard, and uncertainty about how financial support will be removed.
Clearly the key factor shaping perceptions is the state of the global economy and most macro-economic trends were viewed pessimistically, with recent signs of recovery regarded as fragile and vulnerable to after-shocks. But implicit within the surveys No 1 banana skin is a fear of regulatory over-reaction ,which could impede an already tentative recovery.However to be fair to the regulatory authorities only 9% of respondents felt that the industry was "well prepared" to handle the risks identified and 11% thought the finance sector was "poorly" prepared to do so. My own No1 banana skin would be the pace of recovery and the absence of any momentum toward a post-recession strategy.In short, a governmental reality-check would be welcome. All businesses, not just in the financial sector, are wrestling with the new recipes for success in an emerging, post-credit crunch environment. What is clear to me is that reinvigourating the financial services sector needs to start with rebuilding the trust of customers and I take great heart from the fact that building societies have retained some powerful credentials to excel in doing just that.

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