Recession threat is top risk for banking, global execs say

The fragile world economy, which has been staggered by the European debt crisis, has global banking executives reporting greater anxiety than at any time measured during the past 14 years, a new survey shows.

Macroeconomic risk, defined as a fragile global economy on the brink of recession, poses the greatest risk to the banking industry, according to the Centre for the Study of Financial Innovation poll of 710 bankers, banking regulators and observers of the banking industry in 58 countries.

“The picture painted by this survey is very bleak,” David Lascelles, who edited the survey, said in a news release. “It shows a fragile banking system beset by major threats and uncertainties.”

The European debt crisis – and the threat of a collapse that would have an impact on banks worldwide – has bankers in the United States, Canada, China, Argentina and Australia putting the fragile economy atop their list of concerns.

Since 1998, the survey has used an index to measure banking industry executives’ anxiety about the No. 1-rated risk and the anxiety about all 30 risks presented in the survey. Both anxiety measurements in the poll are at an all-time high.

Concern about a possible crash appeared to also motivate the No. 2 risk identified in the poll: credit risk. Large credit losses would be among the first consequences of a collapse.

Credit risk was also the No. 2 risk identified in 2003, 2005, 2006, 2008 and 2010, and was the top risk in the 2002 poll. The poll wasn’t conducted in 2011. Political interference was rated the top risk in 2010, when macroeconomic risk was identified as the No. 4 risk. In this year’s poll, political interference dropped to No. 5.

The concern over the European debt crisis mirrored that of the fourth-quarter 2011 “CFO Signals” report recently released by Deloitte. In that survey, North American CFOs most frequently mentioned economic turmoil among their most worrisome risks. The CFOs described worries about global customer demand and the possible spread of financial distress to North American banks as a result of the European debt crisis.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.