The financial services sector is emerging from the worst financial crisis for 80 years. Tighter regulation, an overhang of debt in the west and the immense growth in the power of banks in emerging economies will transform the landscape of banking. What opportunities and threats will this create? And what are the main lessons that banks will learn from the crisis?
CIMA sector report
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There is growing optimism that both the world economy and the banking industry are recovering from the impact of the financial crisis. But the financial world has changed permanently, both in terms of the balance of power within the industry and how banks will be allowed to operate in future. Banks in emerging markets are now well capitalised and well funded and big enough to compete directly against their western counterparts in the global marketplace. They have greater potential for growth because of the relatively immature development of their domestic financial markets and their rapidly growing economies. But regulation will become an issue in the emerging markets just as it is in the more established western markets and may result in a return to more traditional business models. However, the regulatory environment will differ greatly from one country to the next. The stronger role of national governments within banking means the future model for banking and corporate governance is likely to be a hybrid of a regulated free market approach and so-called ‘state capitalism’. A key challenge lies in the dichotomy that financial markets are increasingly global while regulators are predominantly national. Greater international co-operation will therefore be needed to improve the stability of the global financial system. The dominant role of the US dollar and of the US banks is set to give way to a world where other countries, their currencies, their capital markets and banks, all play a greatly enhanced role. This structural shift will offer both opportunities and threats. Perhaps the biggest lesson from the crisis is that banks all around the world have learnt that they must co-operate more. The financial crisis has demonstrated the need for banks to understand their business models together with the associated risks and to have confidence that performance indicators and executive incentives reinforce desired behaviours. Through their skills in providing high quality business information, management accountants should be at the forefront of meeting this need and thus contributing to the long-term sustainable success of their organisations.
2 | The global banking sector: current issues
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About the authors
Michael Pennington is a business writer and former publisher of Shanghai Business Review, based in Shanghai, China. Phil Thornton is the lead consultant at Clarity Economics, which provides reports on specific issues within the fields of economics and business, based in London,...