Wither the old banking models?

THE cracks in the banking system have once again been ripped open. Twice in the past decade, banks all over the world have slid considerably on all parameters. The 2008 crisis brought down many banks, nationalised many others, changed the metrics for their measurement and ushered in new adequacy and stress norms. This regime is not even 10 years old, a small period in industrial cycles. We are already in the midst of the next tsunami.

The Chinese banks are not the only ones to show severe stress. Global banks like Citi, HSBC, Standard Chartered and Deutsche Bank have had more bad news in recent weeks than they have had over the past five years. These and others have been scurrying for remedies that include massive layoffs (what's new?), sale of significant parts of the businesses or geographies and reorientation of the business itself. None of these banks have secured any assurance from the regulators or the retail investors that they have a good plan. Even the better run banks in Singapore, for instance, have shown some vulnerability of late, arising from serious issues in oil and gas, property sectors, etc. The US banking industry was racing towards a record year of profits by the second quarter of 2015 but has since shown weaknesses with unquantified provisions for bad loans and significant other scums floating to the top.

While each bank has a slightly different ailment, the broad issues are the same. Overexposure to risky assets, slow adequacy compliance, lack of innovation in stagnant market segments, bloated overheads, continued overpay for top executives and in some cases, rudderless voyage. Since 2008, governments have had more ownership and more say in the running of "too big to fail" banks. It is debatable if that has improved performance or led to complacency or merely shared the blame.