The fragility of the global economy is the greatest threat to the banking industry as a return to recession could mean more losses from bad loans and bank failures, according to an industry survey.
Macro-economic risk rose to become the number-one concern among bankers, the Centre for the Study of Financial Innovation, a forum for bankers and regulators funded by institutions including the Bank of England, reported in a survey today. The amount of debt some countries have, access to liquidity and a scarcity of capital were their next worries, it said.
Standard & Poor’s downgraded nine European nations on Jan. 13, saying recent policy steps may prove “insufficient” to contain the fiscal crisis, already in its third year. France and Austria were both cut by one level to AA+. S&P also lowered the rankings of Malta, Slovakia and Slovenia by one rank, and Italy, Spain, Portugal and Cyprus by two.
“The fragility of the world economy with the possibility of a return to recession poses the greatest risk to the banking industry in these turbulent times,” the London-based group said in a statement. “The picture painted by this survey is unquestionably the bleakest we have seen in more than 15 years.”
Political interference, the top worry in the last survey in 2010, dropped to number five. Concerns about credit risk ranged from sovereign debt to falling real-estate prices in Europe, the U.S. and China and consumer-debt levels in China and developing nations such as Turkey.
“The biggest risk of all is that it will not prove possible to bring about an orderly reduction of borrowing by nations, banks and commercial and individual customers resulting in a major recession,” Brian Pearse, former chief executive officer of Midland Bank Plc and chairman of the CSFI, said in the statement.
The survey questioned 710 bankers, observers and regulators in 58 countries in November and December.