Page 16 - GIF

Banking
Safer Banking
out with public money. Other improved measures in terms of deposit guarantees and provision funding are reassuring to the extent they provide the consumer with some safety. Due to limits of guarantee mechanisms and time involved to create provisions at a national and EU level, high net worth individuals still need to exercise caution in selecting their financial institution.
Asset recovery
Educated decisions need to be made at this level more than ever as the crisis evidenced that size is not necessarily syn- onymous with safety and banks can fail. It also brought to light the fact that asset recovery can take a significant amount of time, recent cases have seen clients not access their assets held with failing institutions for a number of years. Despite this, the tools at the disposal of consumers are still limited when evaluating the health of a given institution, therefore reliance on regulatory authorities is still warranted.
Credit ratings used to be considered a useful tool in selecting both institution and investment, the crisis once again bringing to light serious shortcomings in this respect most notably in terms of securitised assets put at the disposal of the general public. Less reliance on behalf of regulators and more transparent processes have helped to improve the quality of credit ratings; it would however be short-sighted to rely solely on them. Financial data on banks are generally available in one format or another depending on the jurisdiction; however, their complexity and comprehensiveness tend to confuse more than clarify.
Macro issues
So far the ambitious post crisis reform agenda has been a success in that it has achieved to put in place concrete measures in a relatively short period of time. The measures however mainly focus on macro issues, consequently the individual consumer still needs to be aware and conscious of its own responsibility in mak- ing informed choices. Conversely, bankers should be ready to answer questions relating to their institution such as capital and liquidity ratios and ultimately its own asset quality.
www.turicum.com
By Benjamin Moss, Chief Risk Officer, Turicum Private Bank
Safe banking has gained a new meaning since the financial and banking crisis of 2008, both in terms of how the customers view the industry but also how it has impacted the articulation of regulatory reform.
In light of the hefty reform agenda put in place at EU level, consequently
affecting Gibraltar, consumers are legitimately entitled to question whether these changes directly serve them in providing a safer platform for their money and financial assets. Indeed, there is no doubt that via the regulatory reform agenda safety and stability has been achieved to an arguable extent across the industry, in an aim to provide a more resilient and stable
financial system. However, to what extent do these changes affect the individual over the greater good?
Domino effect metaphor
The main conceptual issue was that the crisis fundamentally changed the perspective on systemic risk, not only confirming existence of its catastrophic consequences but also its unpredictability. The contagious nature of systemic risk is traditionally portrayed by the domino effect metaphor. This depicts the idea that connected financial institutions fail as a consequence of the links between them, causing a knock-on effect of successive failing institutions. However, this metaphor does not seem to adequately reflect how systemic risk materialised during the recent crisis.
Although knock-on effects occurred, related events combined to create a simultaneous rather than successive breakdown of the system. The observation of this phenomenon flagged several areas that required reform notably in terms of transparency, regulatory intervention and interconnectedness within the industry. Radical intervention was therefore necessary both on the content of the regulations and on the supervisory framework to ensure stability and adequate oversight of the financial industry.
Structurally, regulatory models changed to ensure enhanced prudential oversight with greater powers awarded to the regulatory bodies found at EU level, ensuring greater harmonisation across Member States, but also greater transparency and oversight of cross border activity.
Due to the inability to pinpoint systemic risk as a single legislative topic, the mitigation of it has materialised in various legislative provisions. Significant progress has been made in a relative short timeframe
by tackling issues that have concrete or apparent systemic risk features, there is however commonality to these measures in relation to the constant pursuit of more transparency. By removing opacity of financial instruments and financial institu- tions balance sheets, the access to informa- tion from a supervisory perspective is facili- tated.
The reform agenda put in place at EU level does however lead with the overarching principle that systemic risk requires macro-prudential supervision and mechanisms.
Measures on capital requirements, market infrastructure and funds all assist in providing the EU with a more robust bank- ing sector with increased safety measures to avoid bank failures or needing to be bailed
‘ In light of the hefty reform agenda put in place at EU level, consequently affecting Gibraltar,
consumers are legitimately entitled to question whether these changes directly serve them in providing a safer platform for their money and financial assets
Turicum
Private Bank
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Gibraltar International
www.gibraltarinternational.com
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