By Kroner Niels
'Svenska Handelsbanken' takes a clean examine the monetary main issue. It units out to reply to in particular what the error have been that banks made and the way this is able to were shunned. what's distinct approximately this booklet is a close description of a big financial institution that operates very in a different way from its friends and that has, therefore, suggested good away from components that experience introduced many different banks into difficulty. this gives a few insights into how a extra resilient, post-credit crunch banking method may still seem like.
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Extra info for A Blueprint for Better Banking: Svenska Handelsbanken and a proven model for post-crash banking
The Continuity of the Past to the Future It is intuitively very plausible that recent trends will continue in the future and that patterns of relationship that have been observed will remain. It is also very dangerous and potentially misleading if it is true that the seven deadly sins can lead to a string of profitable years before ending in crisis. Expecting the future to be a continuation of the past is problematic on several levels. Developing a bank’s strategy and thinking about which markets to participate in usually relies on an analysis of the profitability and growth trends of the different market segments.
By definition it puts very low probabilities on events that we can think of which are perfectly conceivable, but have not happened yet. As these models are also used to quantify the amount of capital a bank needs to hold, the banks allocate too little capital to activities with large downside risks. The use of these models are thus responsible for the fact that banks engage in such activities – they do not penalise imprudent activities sufficiently versus prudent ones. If these scenarios materialise, the bank as a whole is likely to find itself undercapitalised.
30 Unsurprisingly, in a recent report the IMF found that the ratios regulators routinely use did not identify the institutions that ran into trouble. 31 Ratios for prudent banking activities are relatively stable while those for activities that fall under the seven deadly sins can behave in very non-linear ways and change very quickly. The solidity of a bank is not about its current shape but about the shape it would be in under a number of stress scenarios. This implies that capital requirements for prudent and imprudent activities should be different.