Treasury Today Country Profiles in association with Citi
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October 2009

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SIBOS is one of the banking industry’s biggest conferences. Originally an event for back-office staff, it is now attended by the transactional banking sales teams as well. Hong Kong was the venue for this year’s conference and it was good to see the Chinese banks represented in force. However, the mood was sombre with fewer attendees than previous years and those that were there just grateful they still had jobs and their banks still existed.

The impact of the Lehman collapse has been enormous and the banking industry is still working through the aftershock of a time when banks stopped lending to each other; there was a shortage of liquidity in clearing systems, let alone the money markets and central banks had to intervene to keep the systems going. Central counterparties and agent banks were – and still are – struggling to fully understand all the risks they face and how to function in this new world.

For corporates, transaction banking is now slower and more costly as unadvised intraday lines of credit are withdrawn or reduced, banks wait for cover for payments, systemic risks are recognised, the risk of counterparty failure is quantified and rights of set-off are explored. Cash, intraday credit and temporary overdrafts may be the lifeblood of working capital but they are becoming a scarce resource. Many corporates have felt the effects of this just as much as that of conventional credit facilities becoming a rare commodity.

Effectively, we have a nationalised banking industry today owned by governments around the world either explicitly or implicitly. Unwinding this arrangement will be a complex task. How will the reliance on bailouts be broken? Large banking groups may be broken up or separated into smaller banks but, inevitably, the assumption of being too big to fail will be tested again and there will be a time when the authorities will have to let one or more institutions fail as competitive, un-supported banking and financial markets are re-established.

Users of banking services should be aware that this story is far from over.