The Financial Crisis from the Perspective of Internationally Active Banks – Answers Given by Dr. André Ehlerding
Several international banks have been hit particularly hard by the financial crisis. What do you think will be the possible consequences and challenges?
In the long term, only those banks will survive whose business model fulfils two key conditions: Just as before the crisis, sustainable business fields must have a perceptible growth vision and prospects of perhaps subdued, but lasting profits. In addition, however, a much better balance has to be found between volatile high-risk activities and stable low-risk business fields from a risk-return perspective. This Herculean task of achieving growth and strong returns as well as low risk and diversification at the same time implies that in part, fundamental changes have to be made in the business and control models and this is likely to foster a world-wide restructuring and consolidation process for some time to come.
In the wake of the crisis, several financial institutions record billions of losses. This affects the capital base. Do you see a need for action here?
Definitely. Regulatory as well as economical capital adequacy plays a decisive role in an environment of fiercer competition. It influences refinancing costs as well as the trust of investors and customers. All financial institutions have to raise their capital ratios when they define their business strategies for the months and years ahead. Operative capital management and a sound strategic capital allocation are indispensible.
The financial crisis is followed by a global recession. Do financial institutions also have to take certain precautions against its effects?
We currently have a market environment that is very challenging for banks and that will certainly remain very critical for some time to come. Thus, banks should prepare well for the forthcoming challenges. First, they should focus on monitoring and actively managing the risks they already have on their books. Second, they have to ensure through a prudent and risk-oriented business policy that new risks related to the recession do not get into their books. Third, they can take target measures to stabilise and re-orientate their own business model.
