Banks fear external shocks most

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Banks have become more assured of their internal risk management, and more worried about an external shock, such as an equity market crash, a downturn in asset quality, or getting their e-commerce strategy wrong. That is the finding of Banana Skins 2000, an annual survey of what most scares banks, their observers and regulators, conducted by the London-based Centre for the Study of financial Innovation, with technical help from PricewaterhouseCoopers.
In 1996, those polled anticipated most trouble from their own poor management, bad lending, derivatives or a rogue trader (this was a year after Barings). In 1997 it was poor management, Emu turbulence, the rogue trader again, and excessive competition. In 1998 it was poor risk management, Y2K, poor strategy and Emu turbulence. This year Y2K predictably disappeared from the top 10 concerns, so did Emu turbulence and poor management. The new set of woes - headed by equity fears - includes failure to grasp, or high dependence on, technology, merger mania, overbanking, and overheating of the US economy.
Respondents predicted "big winners and losers" in the e-commerce race: getting it wrong could prove extremely expensive. Merger mania creates dangers not only from exposure to excessively leveraged counterparties, but also takes management's eye off the ball at the merged institution itself. The merger wave "heightens operational risk", fears one respondent, while another predicts: "The quest for national champions will distort pure reason."
Concerns remain about stability of the eurozone banking system, since it has no lender of last resort. "In a meltdown, who will support ING, HSBC, Credit Suisse?" asks one respondent. Neil Record of Record Treasury Management warns: "Country divergence within the eurozone remains a major looming risk. My view is that any serious rift could pose a real risk of systemic bank insolvency."

David Shirreff

Liquid Real Estate Awards

Abigail Hofman:

Banks fear external shocks most

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