This report surveys perceptions of risks in the banking industry in early 2008 — a time of unprecedented turmoil. The overall level of risk in the market is at an all-time high, as measured by the
Banana Skins Index which goes back to 1998.The most severe risk facing the industry is seen to be liquidity, or the lack of it. With many markets at a standstill since the collapse of the US sub-prime market in mid-2007, banks are immobilised by funding shortages and an inability to value and dispose of assets. The expectation is that these difficulties will persist and have serious knock-on effects in other markets.
In particular, they will increase credit risk as banks and their customers come under strain. Within the financial services market, the soundness of banks, hedge funds and private equity are key concerns. On the lending front, the main focus is on consumer credit because of a weak housing market and high personal debt, but corporate credit is also seen to be at risk.
The survey, sponsored by PricewaterhouseCoopers, puts together a league table identifying these and other potential sources of risks to banks and ranks them by severity. This year’s survey is based on nearly 400 responses from 38 countries.
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