Banking Banana Skins 2008 - PricewaterhouseCoopers

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C S F I / New York CSFI Foreword Foreword PricewaterhouseCoopers is delighted to sponsor another year of Banking Banana Skins. PricewaterhouseCoopers is delighted to sponsor another year of “Banking Banana Skins” The 2008 vintage is as thought-provoking as usual and is all the more interesting for appearing in the middle of a global The crisis. 2008 vintage is as thought-provoking as usual and is all the more interesting for appearing in the middle of a global crisis. Unsurprisingly the credit crunch dominates the responses with new banana skins, liquidity and credit spread volatility, Unsurprisingly in the top three. the Thoughts credit crunch and insights dominates on the the credit responses crunch with go much new banana further skins, than this liquidity and are and threaded credit spread right through volatility, the in survey. the top Worries three. Thoughts that we could and insights see the on failure the credit of another crunch bank go much have further been borne than this out with and are the threaded collapse right of Bear through Stearns the survey. even before Worries the CSFI that we could could finish see analysing the failure the of responses. another bank Bank have share been prices borne remain out with very the volatile collapse and of susceptible Bear Stearns to even market before rumour. the CSFI could finish analysing the responses. Bank share prices remain very volatile and susceptible to market rumour. As several respondents to the survey said, a fundamental issue is that trust has been lost across the industry, and it is As likely several to be respondents a long and painful to the road survey to rebuild said, a fundamental it. issue is that trust has been lost across the industry, and it is likely to be a long and painful road to rebuild it. It is interesting to look back at the 2006 survey. With no mention of liquidity as a separate banana skin the initial It conclusion is interesting is that to no look one back foresaw at the the 2006 scale survey. of the With risks no being mention run. However, of liquidity when as you a separate read further banana there skin are the themes initial conclusion from 2006 that is that have no played one foresaw a significant the scale part of in the the risks current being crisis. run. However I’d highlight when three you in read particular: further there are themes from 2006 that have played a significant part in the current crisis. I’d highlight three in particular : Part of the reason that credit risk kept its second place last time were fears that credit defaults could trigger a Part significant of the reason tightening that of credit liquidity. risk kept its second place were fears that credit defaults could trigger a significant tightening There was of plenty liquidity. of concern about the opacity of where residual risk was ending up. Although mentioned There primarily was in plenty the context of concern of derivatives about the last opacity time, of opacity where has residual clearly risk contributed was ending to up. the loss Although of trust mentioned this time. primarily As we publish in the this context survey, of a derivatives debate rages last about time, the opacity level of has disclosures clearly contributed that the industry to the should loss of make. trust this time. As A number we publish of commentators this survey, a worried debate rages last time about that the risk level management of disclosures was that becoming the industry too mechanistic should make. and losing A the number human of element. commentators For many worried banks last the current time that crisis risk is management clearly a wake-up was becoming call that too risk mechanistic management and needs losing an the overhaul. human element. For many banks the current crisis is clearly a wake-up call that risk management needs an overhaul. So maybe the last survey did get it right after all! I commend this survey to you for a close read as the seeds of the next So big maybe banana the skin last may survey well did be buried get it right in the after detail. all! The I commend role of sovereign this survey wealth to you funds for a perhaps? close read as the seeds of the next big banana skin may well be buried in the detail. The role of sovereign wealth funds perhaps? John Hitchins John UK Banking Hitchins Leader UK PricewaterhouseCoopers Banking Leader PricewaterhouseCoopers 2 CSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk
C S F I / New York CSFI About this survey This survey was designed to learn how bankers and close observers of the banking scene perceive the risks facing the industry. The questionnaire (reproduced in the Appendix) was in three parts. In the first, respondents were asked to describe, in their own words, their main concerns about the financial system over the next 2-3 years. In the second, they were asked to rate a list of potential risks, or Banana Skins, selected by a CSFI/PricewaterhouseCoopers panel, by severity on a scale of 1-5 and whether they were rising, steady or falling. In the third, they were asked to rate the preparedness of financial institutions to handle the risks they identified. Replies were confidential, but respondents could choose to be identified. The survey was conducted in February and March 2008, and received 376 responses from 38 countries. The breakdown of respondents by type was: Regulators 6% Observers 35% Bankers 59% The responses by country were as follows: Australia 15 Japan 11 Austria 5 Liechtenstein 1 Belgium 2 Luxembourg 4 Bermuda 3 Malta 1 Brazil 1 Multinational 1 Canada 9 Netherlands 6 Channel Is 2 Philippines 1 Czech Rep. 5 Poland 4 Fiji 1 Portugal 1 France 2 Romania 4 Germany 5 Russia 25 Gibraltar 1 Singapore 3 Greece 8 South Africa 4 Hong Kong 1 Spain 4 Hungary 6 Sweden 4 Indonesia 4 Switzerland 9 Isle of Man 5 UAE 1 Ireland 4 UK 190 Italy 3 US 20 CSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk 3
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