The process of credit risk management improvement is implemented mainly at the level of a specific commercial bank.
Central and supervisory institutions, which include mainly central banking and banking supervision institutions, may affect some aspects of this process, correct possible excessive levels of systemic credit risk, especially when a specific bank reliably implements prudential procedures in the scope of lending or in an aggravating situation the quality of the loan portfolio caused by the downturn in the domestic and possibly global economy.
Before the emergence of the global financial crisis in autumn 2008, there was an unwritten rule in some financial circles that a large banking entity could not fail.
The declaration of bankruptcy by jeen from the largest investment banks Lehman Brothers, from which the bankruptcy will begin the global financial crisis, questioned this type of opinion referring to entities of the financial system.
Since 2008, in the period of the past decade, another spectacular major mergers and acquisitions took place in the sector of commercial financial institutions, including some of the largest banks globally.
If the supervisory and central bodies of financial systems consent to this type of transaction, is it possible to assume that central banking and banking supervision institutions of particular countries are of the opinion that this is irrelevant to the potential increase in systemic credit risk and thus the risk of emergence in the future, the next and perhaps even more negative effects of the global financial crisis?
What if one of the largest banking entities on the global scale in the future would announce a permanent loss of liquidity?
Do the central banks that are accepting this state already have prepared prudential and rescue instruments, including, for example, counted in many billion USD or Euro rescue stabilization funds in the event of the emergence of the next global financial crisis?
These financial stabilization funds are reportedly already prepared, but can a potentially larger global financial crisis than the previous one in 2008 be effectively controlled thanks in principle only to these stabilization funds?
In addition, if central banking suggests to commercial banks, including investment banks operating on capital markets, that in the event of a financial crisis will help to eliminate the potential risk of bankruptcy of many financial system entities, how these statements translate into an approach to improving the credit risk management process and to comply with banking procedures regarding lending and securities operations and compliance with good business practices?
In my opinion, such unwritten statements can increase the moral risk and reduce the pressure and need to improve credit risk management processes.
On the other hand, the merger of one of the largest commercial finance sector entities and the emergence through mergers and acquisitions of larger banks may generate an increase in systemic credit risk, the negative consequences of which in the event of another financial crisis will be more difficult to control by central banking rescue tools, if the financial reserves shaping the issue of the security of the financial system in the economy maintained by certain central banks will not grow at such a rapid pace as the increase in the balance sheet total of merging and emerging growing banking entities.
In view of the above, after the past decade from the global financial crisis of 2008, the question still remains: Will further mergers and acquisitions in the investment banking sector increase the credit systemic risk in the economies?
Please, answer, comments. I invite you to the discussion.
After mergers, number banks reduced with higher strength which may increase potential to invest after analysis
Yes, it may increase systemic risk. Larger institutions will have more significant impact on systemic risk in case of bankruptcy. As we know Bear Stearns was some how digested but Lehman brother shaked everything around it.
Actually it does increase Risk, as the impact of the failure of a large entity is much more than that of a few small entities.
It is obvious that banking sector will adapt to the new capital requirements that are oriented to limiting of bank assets growth, to decreasing the opportunities of banking firms in speculative activities on financial markets and to bringing the banking system back to the traditional client oriented business model. The stability of banking sector is the primary objective of regulatory authorities.
The additional capital buffers are necessary in long term stability of European banking sector with the special approach to system important banks. Negative consequence of regulatory pressure is that risk banking activities will be allocated to other financial institutions out of prudential regulations. The unregulated shadow banking can increase the costs of adverse selection because banks can transfer the risk to financial institutions that are out of excessive capital pressure. Namely, the phenomenon of banking firms in risk transfer to other market players is particularly apparent after the last global financial crisis (risk shifting). Abandoning the paradigm of socialization of the cost of banking failures is changing the nature of the conflict between the social actors. Regulatory authorities on behalf of the taxpayers become more sensitive to the management structures' behaviour, which could contribute to "returning to traditional" sources of evolutionary growth and development of the banking sector as a whole.
In the case of Investment banking Merger and Acquisition is positive in the initial years because of cost minimization and other things in the changing scenario due to technology dynamics. But the sustainability over a period is doubt due to poor decision making of central banker ( like of Credit Default Swap in 2008 by Major investment bankers in US)
The discussed issue in the above discussion is particularly important, so I invite you to continue the discussion on this topic.
Will further mergers and acquisitions in the investment banking sector increase the credit systemic risk in the economies?
Please reply. I invite you to the discussion.
In view of the above, it is also important to include in the above discussion also the following issue: Are credit rating agencies currently reliably assessing the creditworthiness of national economies, enterprises and financial institutions, including issuers of securities? One of the factors that generated a high scale of negative aspects of the global financial crisis in 2008 was the practice of unreliably carried out assessments of the creditworthiness of national economies, enterprises and financial institutions, including issuers of securities and certain financial instruments offered to individual clients by commercial banks. Have the financial supervisory authorities developed effective instruments to enforce the reliability of credit risk analysis procedures in investment banks and rating agencies? Do financial systems work more effectively than in 2008? Do credit rating agencies reliably carry out an assessment of the creditworthiness of national economies, enterprises and financial institutions? Please, answer, comments. I invite you to the discussion. Best wishes
Dear Friends and Colleagues of RG
The process of credit risk management improvement is implemented mainly at the level of a specific commercial bank.
Central and supervisory institutions, which include mainly central banking and banking supervision institutions, may affect some aspects of this process, correct possible excessive levels of systemic credit risk, especially when a specific bank reliably implements prudential procedures in the scope of lending or in an aggravating situation the quality of the loan portfolio caused by the downturn in the domestic and possibly global economy.
Before the emergence of the global financial crisis in autumn 2008, there was an unwritten rule in some financial circles that a large banking entity could not fail.
The declaration of bankruptcy by jeen from the largest investment banks Lehman Brothers, from which the bankruptcy will begin the global financial crisis, questioned this type of opinion referring to entities of the financial system.
Since 2008, in the period of the past decade, another spectacular major mergers and acquisitions took place in the sector of commercial financial institutions, including some of the largest banks globally.
Do you agree with me on the above matter?
Please reply
I invite you to the discussion
Best wishes
In the context of the above considerations, the following question is also current:
What if one of the largest banking entities on the global scale in the future would announce a permanent loss of liquidity?
Do the central banks that are accepting this state already have prepared prudential and rescue instruments, including, for example, counted in many billion USD or Euro rescue stabilization funds in the event of the emergence of the next global financial crisis?
These financial stabilization funds are reportedly already prepared, but can a potentially larger global financial crisis than the previous one in 2008 be effectively controlled thanks in principle only to these stabilization funds?
In addition, if central banking suggests to commercial banks, including investment banks operating on capital markets, that in the event of a financial crisis will help to eliminate the potential risk of bankruptcy of many financial system entities, how these statements translate into an approach to improving the credit risk management process and to comply with banking procedures regarding lending and securities operations and compliance with good business practices?
In my opinion, such unwritten statements can increase the moral risk and reduce the pressure and need to improve credit risk management processes.
On the other hand, the merger of one of the largest commercial finance sector entities and the emergence through mergers and acquisitions of larger banks may generate an increase in systemic credit risk, the negative consequences of which in the event of another financial crisis will be more difficult to control by central banking rescue tools, if the financial reserves shaping the issue of the security of the financial system in the economy maintained by certain central banks will not grow at such a rapid pace as the increase in the balance sheet total of merging and emerging growing banking entities.
Do you agree with me on the above matter?
Please reply
I invite you to the discussion
Best wishes
Mergers and acquisitions have seen significant growth throughout the world in the last two decades. M & A amounts have reached record highs for the time being. The main factors are attributable to the prevailing trend towards globalization and the low cost of financing. This is in addition to the global financial crisis competition to seek growth and profit.
The above discussion inspired me to the following considerations:
What will be the main sources of the next global financial and economic crisis?
What will be the main sources of the next global financial and economic crisis, which could be faring in the next dozen or so years?
Will they be analogous to the crisis source as in the situation of previous global financial and economic crises?
Will the next global economic crisis be triggered by the financial crisis?
Will the next financial crisis be started similarly to the previous bankruptcy by a large financial institution, a large bank or a corporation?
Will the declaration of bankruptcy by a large business entity trigger strong drops in over-valued securities on securities exchanges?
However, will such huge reserves of money be accumulated in central banks, including those reprinted on a regular basis, that in the situation of potential loss of liquidity by a large, economic entity, the economy will not fail because it will be saved from bankruptcy in the framework of state aid, as part of state intervention?
Is the principle still valid that "the big one can not get stuck" because it will be saved by the government to prevent the emergence of a new large scale of the financial and economic crisis?
Or maybe in the perspective of the next years will also be completely different factors that generate a decline in economic efficiency and a deterioration in the emergence of a crisis in real economies?
Please reply
I invite you to the discussion
Thank you very much for your response and participation in the discussion
Best wishes
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