– Thoughts on Strategy and Management

Banking Banana Skins

A banana skin may be slippery and may cause you to stumble or even fall when you Stepp on it. Hence, ‘Banking Banana Skins 2010 – After the ‘quake’  is the name of a new study from the CSFI Centre for the Study of Financial Innovation   which is sponsored by PricewaterhouseCoopers. As PwC describes it, Banking Banana Skins 2010 puts together a league table identifying potential sources of risks to banks and ranks them by severity. This year’s survey is based on over 400 responses from 49 countries.

I found the results not overly surprising, but nevertheless interesting: The number one risk seen for 2010 is political interference, followed by credit risk on number two and too much regulation on number three. Political interference made its first appearance in the banana skins table this year, whereas too much regulation was on number eight in the last survey 2008.

The study states that these perceptions of banana skins is common to all major banking regions and shared by bankers and non-bankers alike. It is shared by me too. There is no doubt that the banking industry needs a new regulatory framework, since the existing one was not able to prevent the latest financial crisis. This crisis had an extraordinary impact on the worldwide economy and at least a perceived impact on almost everyone’s personal life. Hence, there is a high public awareness and a potential pressure on governments and regulators to act quickly and decisively. This is where my personal fears come in. Banking regulation is a complex issue. Even today scientists and practitioners alike are still debating on what measures might be helpful, without any effect or even contra productive. There is a serious risk that the upcoming changes in regulation will be too fast (i.e. not well enough analysed for their real impact) and not target-orientated enough. It won’t do to make it more difficult for banks to earn money and to grow beyond a pre-defined size. Who, by the way, knows at which size exactly is a bank too big? In the end of the day, this might act as a stimulus plan for consultants and other clever folks to find ways to increase profitability despite any new regulation. We must not forget that the majority of banks still have owners who expect a particular return from their investment and who compare the profit earning potential from an investment in banks with other investments. Banks still have to compete for investments. In my view the more important (and more difficult, of course) issue is to impose a regulatory framework that monitors the stability of the whole sector more precisely and that allows to react quickly to early warning signs of potential problems.

Back to the Banana Skins Survey. It lists a league table of the 30 most dangerous banana skins for 2010 and discusses these in detail. It also compiles the top banana skins from 1998 on. This is an interesting review of the changing issues that have troubled bankers during the last years. There is also a ‘Who said what’ section that breads down results to different re-gions and respondent groups. All in all it makes an interesting reading for anyone interested in or affected by the banking industry.

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