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November/December 2010

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Editorial

Don’t mention the crisis

Across the industry, people are resolutely talking about the crisis in the past tense.

At some point, the financial crisis stopped being ‘the current financial crisis’ and became ‘the recent financial crisis’.

Across the industry, people are resolutely talking about the crisis in the past tense. For some, it goes further: some bankers are beginning to show an increasing sense of discomfort with the very word ‘crisis’, arguing that it is time to focus on the future instead of the past.

It is natural to want to move on from a difficult chapter in the world’s history, but is that chapter really over, at a time when Ireland has accepted a bail-out to shore up its troubled banks? And does moving on necessarily mean we should stop talking about the crisis?

The danger of complacency

It is reassuring to consign the financial crisis into the past – and there is a good argument for moving out of crisis mode and focusing on the road ahead rather than dwelling on recent difficulties. In doing so, however, it is crucial to make sure that the road ahead is different to the road we were on three years ago.

Whereas times of difficulty can provide a powerful impetus to evolve, once the difficulty has receded – or is perceived to have receded – this impetus can rapidly subside. In its place comes complacency, and a desire to return to the status quo as quickly as possible.

What should make treasurers wary is when the word ‘crisis’ becomes taboo in the banking community.

What should make treasurers wary is when the word ‘crisis’ becomes taboo in the banking community.

A reluctance to talk about the crisis is only a breath away from whitewashing over the extent to which this financial earthquake shook the industry, and the aftershocks that are even now continuing to be felt.

In this month’s Insight & Analysis article, we ask how safe the banks really are today and explore the actions treasurers are taking to protect themselves from bank counterparty risk.

Complacency is also in danger of hijacking the regulatory measures designed to address the causes of the crisis. As this month’s Market View article argues, even as regulations gather like storm clouds overhead, in some cases their original purpose is already in danger of becoming diluted or forgotten. With economies recovering, no matter how slowly, public support for drastic regulatory measures rapidly fades. Yet without drastic measures, nothing will really change.

The crisis is not over yet…

Not over yet

Furthermore, whether the crisis can indeed be officially dispatched to the history books remains open to debate in the public arena. “The crisis is not over yet,” said ECB board member Jürgen Stark at a Transatlantic Business Conference last month. “Economic growth in the advanced economies will recover only gradually. Given the multi-speed character of this recovery at the global level, there is something of a question mark behind its sustainability,” he added.

The last few years have had monumental implications for corporate treasurers, who have moved into the spotlight. With the crisis supposedly over, the challenge now is to build on recent achievements and maintain treasury’s visibility within the organisation. In order to do so, treasurers will be looking to draw strength from the lessons of the crisis – rather than pretending that nothing has happened.