Do Zombies sleep?:: bankers are ‘kept awake’ by fears of new crisis | Herald Scotland

This shouldn’t come as a great surprise…no, not the fact that bankers have a conscience (the article doesn’t go that far and I doubt the research would have obtained a believable response)!!!

We are ALL worried about the impact of a  “global recession” but banking has been in a cultural crisis for years. Financial and political “mismanagement” led to a financial crisis that, without decisive action, has created a Social crisis.

Now, finding a solution IS something that is worth losing sleep over! But, on the evidence of the last few years the answers will not come from the people who brought us here…at our expense.

Another global recession triggering a catastrophic banking crisis is keeping bankers awake at night, according to a survey of the world’s banking industry from the Centre for the Study of Financial Innovation (CSFI).

The main cause of anxiety is the eurozone crisis, with the shock of a euro collapse liable to hit banks not just in Europe but in all major regions of the world, says CSFI’s annual Banking Banana Skins survey, produced in association with PwC.

via Bankers are ‘kept awake’ by fears of new crisis | Herald Scotland.

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Banking: “culture” a greater threat to ROE than Basel

When the obvious conclusion is “politically sensitive” it is best for firms such as McKinsey to talk in terms of what returns investors want from the future banking model. But isn’t this part of the problem?

(McKinsey)…estimates show that if banks maintain their existing business models, their average return on equity (ROE) would fall to 7 percent by 2015, from its current level of 11 percent, against a cost of equity projected to be more than 9 percent.

Investors want to see the management teams of banks propose credible, far-reaching plans to close this gap. The message that investors are now sending—shares of banks will be valued at levels implying that they will not earn their cost of equity—has profound implications for a US economy dependent on a healthy banking system to support recovery and fuel growth.

Of the three threats, the most significant comes from the Basel III requirements, proposed by the Basel Committee on Banking Supervision. Without mitigating actions, they could reduce the ROE of some banks by as much as five percentage points. While the details are still being determined, we estimate that the US banking system will need an additional $500 billion in retained earnings or new equity to meet the new capital adequacy standards (assuming the current asset level and mix).

The second threat is the continuing deleveraging of consumers. The history of the past 100 years suggests that when excessive borrowing is a principal cause of a recession, consumers and businesses spend the next seven to eight years rebuilding their balance sheets…

Basel III: Why bother when the prequel was a “flop”… there is an extract from and link to a 2001 report that identify failings that were “overlooked”!

Here are some other “out-pouring’s” on this and related subjects!

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• Bank reforms to make it look as if something is being done (fitforrandomness.wordpress.com)
• Banking: Understand the financial system first, regulate it and save $200bn p.a. for starters…(fitforrandomness.wordpress.com)
• How to Escape the Basel III Doom Loop (online.wsj.com)
• “The State of Global Banking – In search of a sustainable model” | McKinsey (thebankwatch.com)
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• FT.com: Financial institutions stare into the abyss (fitforrandomness.wordpress.com)
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• Complexity conundrum: Commerzbank and Capco’s complexity “coincidence”! (fitforrandomness.wordpress.com)
• Prof Andrew Lo: what’s wrong with the “traditional investment paradigm”? (fitforrandomness.wordpress.com)

HSBC faces £40m bill for mis-selling to elderly in care

Regulatory failure or further evidence of a culture implicitly “endorsed” and underwritten by Government?

Och well, so long as they say “sorry”!

Unsuitable sales of this product were made to 87% of NHFA customers, prompting the largest retail fine to date from the Financial Services Authority (FSA).

HSBC will pay £29.3m compensation and said it was “profoundly sorry”.

via BBC News – HSBC faces £40m bill for mis-selling to elderly in care.

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LIBOR: The territory looks familiar but no more appealing!

And Now Banks Are Beginning To Freak Out About Lending To Each Other Again

How can “entrepreneurial spirit” and "creative destruction" flourish without nourishment?

Joseph Schumpeter reinterpreted (from Marx economic theory) and popularised the expression “creative destruction” to describe the process by which established ways of doing things are destroyed from within (by new thinking, tools and processes) – at this point the scientific community may draw attention to the 2nd Law of Thermodynamics: that a system tends toward entropy (chaos or disorganisation) and consider the state of our global economy.

Hugely expensive and experimental life support for “clinically dead” institutions, markets, currencies and flawed philosophies equates to – at best – stagnation and at worst starves innovators of the means to accelerate a new evolutionary phase: instead of “creative destruction” we have “destructive creation” in the form of more regulation!