Regulation and political interference topped the list of risks among the global banking industry (No.1 and No.2 respectively) – replacing 2012’s leading threat, the macro-economic environment, according to the Banking Banana Skins 2014 survey released today.
Whilst here in the Channel Islands, PwC CI also surveyed a number of senior banking leaders across both Jersey and Guernsey in order to get a local perspective on how the CI banking industry ranked the same list of risks. Based on this local research, the raft of political interference from around the globe, followed closely by regulation and technology risk confirms there’s a substantial amount of consistency amongst the CI and global survey findings.
The CSFI’s biennial Banking Banana Skins survey, produced in association with PwC, revealed the overwhelming message from respondents: the weight of new regulation is becoming excessive and could dampen economic recovery and growth. The poll is based on responses from more than 650 bankers, banking regulators and close observers of the banking industry in 59 countries.
Political interference was also specified by respondents as causing more costs and constraints to the banking sector. Some of the strongest concerns around political interference come from Europe – where extensive measures have been proposed or adopted at both the EU and national levels to make banks safer.
However, the survey also shows that anxiety about the outlook for banks has started to decline for the first time in seven years, suggesting that the operating climate for banks is finally turning.
The poll shows that concerns expressed in earlier surveys about capital availability, liquidity, credit quality and exotic products in the banking system have begun to ease. Although confidence about the macro-economic outlook has also strengthened, the survey reveals strong ongoing concern about the stability of the Eurozone, and rising worries about emerging markets, particularly China where the banking system is seen to be under stress. The outlook for the tapering of quantitative easing by central banks is widely seen as crucial to global economic prospects.
A fast-rising risk in the Banana Skins ranking is technology risk, which has risen from No. 18 to No. 4, largely on the back of strengthening concern about cybercrime. This is a problem which, as one global respondent said: “can only get bigger” and cost banks heavily both financially and reputationally. Technology concerns also centre on back office systems which are seen to be ageing but also a low priority for investment. Locally, a CI respondent emphasised that firms are too focussed on cost rather than investment in technology and that “we need to reverse that trend”.
A breakdown of global responses shows that all major respondent types (bankers, observers and risk managers) are strongly concerned about regulatory excess and political interference, as well as the state of the global economy. However non-bankers are more worried about institutional risks in banks such as the quality of governance and management; bankers play these risks down.
By region, the responses show concern about regulation and politics to be strongest in Europe and North America. The top concerns in the Asia Pacific region focus more on the macro-economy and the risk of sharp changes in interest rates.
“Although there are encouraging signs in this survey, respondents’ concerns around over regulation need to be taken seriously. It would be ironic if new banking rules ended up snuffing out the recovery,” said David Lascelles, the survey’s editor.
Mark James, Partner at PwC CI concluded: “Although the survey results are predominantly based on global responses, we are pleased to have supplemented this with our own local research which has confirmed the findings, particularly in respect of the top ten risks, are relevant to our local banking industry here in the Channel Islands. The results of the survey are essential reading for all senior staff concerned with strategic direction, profitability, performance and day to day financial management of CI firms.”