|Euromoney 40th anniversary section|
institutions discuss the challenges facing the global banking
industry: restoring trust among policymakers and stakeholders;
avoiding regulation that will hurt economies as well as banks;
bringing compensation back into line; and making money in a
radically changed world.
Banking & Markets
financial markets in the years to come: from firms old and new
that will lead the field in restructuring, to growing forces to
be reckoned with in capital markets, wealth management,
securities trading and research.
Regional firms to follow
Innovation in finance is likely to be driven as much from
emerging markets as the developed world. Some of the biggest
names in banking, asset management and private equity will
spring from the markets of Latin America, Asia and EEMEA.
The most important indication of change is the closure of the capital market indicated by the inability of both industry and local and public authorities to raise funds by the issue of fixed debt instruments this at a time when the banking system is withdrawing credit facilities on a large scale.
Unless debt can consistently be created and financed out of the savings of the community, it is impossible for a capitalist system whether state controlled or substantially the responsibility of private enterprise to survive."These words, written by Sir Christopher Bolton of the Bank of London and South America, were among the first published in Euromoney, in its June 1969 launch issue.
They could almost have been written at any time over the past 12 months, when the banking system was in jeopardy and even the capitalist system seemed under threat.
That bleakest of outlooks has been replaced by a mood of cautious optimism. There is a feeling that banking has turned the corner although the fear persists that we may yet turn 180 degrees and go round again. The banking system is being recapitalized, its foundations shored up; but it remains in a highly weakened state as we start to feel the impact of the worst economic downturn in generations, and institutions prepare to deal with the type of surge in NPLs and defaults that have brought down many banks in the past.
Despite this change in sentiment, banking leaders recognise there is little chance of a return to the leverage-led boom of the recent past. Instead, they are set on limiting the damage that regulators might wreak in response to the havoc that the near-collapse of the banking system has inflicted on the global economy.
This is in itself a refreshing change. Through the depths of the crisis, few if any senior bankers stood up to be counted when it came to defending the role of finance in promoting economic health and wealth. Perhaps they reckoned that it was pointless, as no one was prepared to listen. More likely, and rightly, they were too engrossed in trying to save their own institutions.
But bank leaders can no longer be shy about promoting the role that they and finance as a whole play in oiling the wheels of global economics. And it is encouraging that, in a range of contributions from some of the leading figures in banking in this issue, they show a recognition that it is time to step up on behalf of the industry, and not just their own firms. Their continued existence may depend on it.
The over-riding issue is simple: banks must restore trust, among politicians, regulators, shareholders and the individual men and women who use their services.
That requires action in a host of areas, many of which are inter-related. They include: changing the way that bankers are compensated; proper understanding and management of risk; ending the fixation on short-term results; readjusting the earnings expectations of shareholders; and staving off the potentially nationalistic tendencies of regulators.
It is quite some challenge. Failure to rise to it will change banking for a generation, and with disheartening consequences.But there is much to encourage. In the 40 years that Euromoney has covered global finance, the industry has faced many crises: the collapse of Bretton Woods, the crash of 1987, the emerging markets crises in Latin America and Asia in the 1990s, the fallout from Long-Term Capital Management, and the bursting of the internet bubble to name a few.
Perhaps the recent crisis shows that the banking industry has at times been very poor at learning the lessons from the mistakes it makes. That is likely to remain the case, despite todays fine rhetoric. Indeed, as Q1 earnings gave new confidence to banks after the disasters of 2008, there was already a feeling that some bankers memories were beginning to fade. It is unlikely that regulators will suffer from any similar loss of recall.
However, the aftermath of these previous crises shows that the capacity of finance to reinvent and renew should not be doubted. That renewal is led by the talented and driven people who work in the industry. It will not be any different this time around.Therefore our 40th anniversary gives Euromoney a chance to look forward. We profile the firms and the individuals who will help to write a new and successful chapter in global finance. Weve picked out old firms sticking to what they have always done best and whose time has come, or those adapting to new times; or relatively young businesses with a new offering, or a new take on an old one. We could have picked many more. Some will succeed; some will no doubt fail to live up to their own expectations.
But a new era presents new opportunities for those who spot them and build the right model to exploit them. Thats the beauty of finance. Long may it continue.