Top leaders from global banking institutions on Tuesday expressed their apprehension that the next financial crisis could originate from escalating geopolitical tensions and the persistent spectre of regulatory tightening.
Reuters reported that this shared concern emerged during the Global Financial Leaders Investment Summit, hosted by the Hong Kong Monetary Authority, where more than a dozen prominent executives discussed the potential challenges faced by the financial sector.
Morgan Stanley’s Chairman and CEO, James Gorman, voiced his opinion on the possible trigger for the next global financial crisis. He noted that the threat is likely to emanate from the geopolitical or political realm, although he did not provide specific details.
Gorman’s remarks come amid ongoing conflicts such as the Israel-Gaza situation and the Russia-Ukraine war, along with simmering tensions between the United States and China. These factors contribute to heightened uncertainty in the global economic landscape.
Deutsche Bank’s CEO, Christian Sewing, added to the conversation, highlighting the current resilience of the markets in the face of global events. However, he expressed concern that a sudden escalation in geopolitical tensions could disrupt this calmness and potentially lead to a market event. The unpredictability and swiftness of such developments remain a key source of worry for banking leaders.
Reflecting on past financial crises, the executives discussed the actions taken by central banks in response to the 2008-2009 global banking crisis. These institutions worked to prevent a reoccurrence, particularly in the face of significant cash withdrawals from regional U.S. banks. Swiss authorities also played a critical role in facilitating UBS’s rescue of Credit Suisse, an event praised by the European Central Bank as instrumental in reassuring markets. Despite these measures, uncertainties persist, with ongoing geopolitical tensions further complicating the macroeconomic outlook.
In a notable united front, the global banking leaders also used the summit as an opportunity to express their concerns regarding stringent banking regulations. They criticised the “Basel Endgame,” a comprehensive overhaul that would require banks to set aside larger capital reserves to mitigate risks, a proposal that was brought forward in July.
Goldman Sachs’ Chief Executive, David Solomon, was vocal in his opposition to the rules, suggesting that they go “way too far”. He expressed worries about the economic impact of these measures, stating that they could hinder economic activities and growth.
Within the U.S., regulatory bodies have proposed stricter capital requirements for large banks, in response to runs on smaller banks earlier this year. The banking industry has contested the need for substantial capital increases.
UBS Group Chairman, Colm Kelleher, suggested that the next financial crisis might emerge from the shadow banking sector, where a growing portion of global assets is managed. Kelleher emphasised the need to address the size of large banks, as the pressure on the system could lead to less competitive players falling back, making it challenging to predict the nature of the next crisis.
