More than three quarters of bankers and regulators think that they are not fully prepared to grapple with future shocks in the banking system. In 2006, two thirds thought they were.

Amid evidence that the credit crunch has triggered a crisis of confidence in the ability of banks to anticipate problems, an authoritative survey shows how liquidity has become the main problem area. A lack of it has been at the centre of the crunch, forcing central banks to inject tens of billions of pounds into the financial systems of the West to prevent bank failures.

Yet almost no one said that liquidity was a problem area in previous “banana skin” surveys by the Centre for the Study of Financial Innovation and PricewaterhouseCoopers (PwC). John Hitchens, UK banking leader at PwC said: “For many banks the current crisis is clearly a wake-up call that risk management needs an overhaul.”

Credit risk – that of borrowers not repaying loans – was cited as the next-biggest risk after liquidity. Consumer indebtedness was also a worry.

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Background

• Darling hit with £16bn tax hole

• King's City bonus comment attacked

• Bank predicts crisis will hit UK hard

• Consumer slowdown 'could last until 2010'

Multimedia

• Full credit crunch coverage

• Video briefing: global market instability

Background

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• Who caused this nightmare? The blame spreads

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Related Links

• Credit crunch gives banks $11bn headache

A senior banker in an American bank said: “Consumers are in worse shape than most observers appreciate . . . their failure rate will look like a tsunami to those lollygagging on the financial beaches.”

Property, both residential and commercial, was seen as a particular concern. Other factors worrying bankers were the slowing of Western economies and the quality of risk-management techniques.

Banking banana skins

Top ten banking worries

Today
1. Liquidity
2. Credit risk
3. Credit spreads
4. Derivatives
5. Macroeconomic trends
6. Risk management
7. Equities
8. Too much regulation
9. Interest rates
10. Hedge funds

2006
1. Too much regulation
2. Credit risk
3. Derivatives
4. Commodities
5. Interest rates
6. High dependence on tech
7. Hedge funds
8. Corporate governance
9. Emerging markets
10. Risk management

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