State of the Financial Services Industry: The Financial Crisis of 2015: An Avoidable History

February 8, 2011
Industry Trends
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

REPORT PREVIOUSLY PUBLISHED BY OLIVER WYMAN

Oliver Wyman recently launched its 14th annual State of the Financial Services Industry report, titled The Financial Crisis of 2015: An Avoidable History in Davos, Switzerland during the 2011 Annual Meeting of the World Economic Forum. In the report, Oliver Wyman posits that although financial services executives and regulators have worked to design a more stable financial system in the wake of the global financial crisis, they should nonetheless be prepared for a variety of scenarios that could create another crisis.

The report “stress tests” the current financial system by describing a possible scenario for a financial crisis in 2015. Under this scenario, the risk forced out of the Western banking sector by tougher regulation then flows into the shadow banking sector and into emerging markets, forming bubbles in commodities and related assets. The bursting of these bubbles in turn triggers sovereign debt restructuring in vulnerable, developed markets. The report suggests this is only one of the potentially adverse scenarios financial institutions and regulators could face that should be stress tested in order for industry participants to better manage risks and shape their strategy development.

Considering a pessimistic scenario such as this is not intended as a prediction; rather we believe scenario-based planning and stress-testing are tools that should be used by financial institutions and regulators to help minimize the impact of future crises.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Planting the seeds of failure

1

Disappearing into the shadows

2

Go East (or South) young man!

2

Bubble creation

3

The bubble bursts

4

Judgment day for sovereigns

5

Our unemployed protagonist

5

1. The purpose and structure of this report

6

2. How plausible is our 2015 crisis scenario?

7

 

2.1 The resurgence of shadow banking

7

 

2.2 Emerging markets asset bubbles

10

 

2.3 Sovereign debt crisis

14

3. What financial institutions and

regulators might learn from our

pessimistic scenario

17

 

3.1 Ideas for regulators

17

 

3.2 Ideas for financial institutions

19

Conclusion

24

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