Powered by MOMENTUM MEDIA
subscribe to our newsletter
Fresh fears over bank leverage and risk-taking

Fresh fears over bank leverage and risk-taking

The Bank for International Settlements fears that the longer-term profitability of the global banking sector could encourage lenders to engage in risk-taking and excessive leverage.

A new report released overnight by the Bank for International Settlements (BIS), which represents the central banks of 60 countries, has advised both banks and their regulatory supervisors to pay close attention to “longer-term profitability challenges”.

The lower profitability of the global banking sector partly reflects cyclical factors, the report said, but it can also be pinned down to more resilient balance sheets and higher capitalisation.

Advertisement
Advertisement

“Market concerns about low profitability may deprive banks of an important source of fresh capital, or encourage risk-taking and leverage by banks, thus placing a premium on robust risk management, regulation and supervision,” the report said.

Equity investors remain sceptical towards banks with low profitability, said the BIS, which conducted simulation analysis suggesting that some banks would need to engage in further cost-cutting and “structural adjustments”.

Overall, the report found that while major banks in advanced economies have moved away from trading and cross-border activities, there is no clear evidence of a “systemic retrenchment from core credit provision”.

Second, supervisory bodies (such as APRA in Australia) should monitor banks’ cost-cutting and adjustment programs and facilitate the process by “removing impediments where necessary”.

Finally, banks and authorities should not become complacent about their progress to data and “press on with the implementation of reform”.

Fresh fears over bank leverage and risk-taking
mortgagebusiness

 

Latest News

Westpac and the Commonwealth Bank’s share of the third-party mortgage market has spiked, in contrast to sharp declines from NAB and ANZ, t...

A non-major lender has dropped its fixed mortgage rates, becoming the fourth lender to reprice its offerings over the past two weeks.   ...

The interest lenders earn on mortgages is expected to remain under pressure this year and next, according to Moody’s. ...

FROM THE WEB
podcast

LATEST PODCAST: What drops in fixed rates may mean for the mortgage market

Do you think the banking royal commission recommendations could negatively impact competition in the mortgage market?