Global Industry Outlook 2011 - Global Finance

By M. Isi Eromosele

As we start the year of 2011, the ripple effect from the sub-prime mortgage lending practices that resulted in a global financial crisis is still being felt within the financial industry, albeit at a minimal level. The global economy is showing tentative signs of economic and financial recovery. Many economies have returned to positive growth, especially in emerging market nations. The stock markets in a few developed nations have returned to their pre-financial crisis levels. The outlook for the global finance industry is cautiously hopeful.

There is still a great deal of uncertainty about how long it will take for the industry to fully recover. Many huge global sized financial institutions are still taking significant write-offs to cover their losses from the recent financial crisis. As 2011 progresses, many global financial institutions could experience continued detrimental effect on their earnings as well as negative asset qualities. Several of these institutions may have to carry particular bad debts and securities on their balance sheets.

The issue of financial liquidity has been and still is of foremost concern for global financial services institutions. China recently raised the liquidity ratios for its banks. In the European Union, the Central Banks of many nations, including those of the United Kingdom, Spain and Ireland have had to inject funds into major banks within their financial systems in order to keep them solvent. The U.S. Federal Reserve had taken the same action in the United States. Several nations within the European Union, including Greece, Portugal, Ireland and Spain have required or may require financial bailout assistance to cover their nations’ huge budget deficits.

On a positive note, banks have started lending to one another again, making them less dependent on funding from their respective nation’s Central Banks. After several months of intense negotiations and collective actions by the European Union, there is a universal feeling that the budget crisi in Europe has been stabilized. New banking (Basel III) regulatory rules have been established, specifically designed to avoid a repeat of the recent global financial crisis. New tougher controls dealing with capital liquidity and leverage are being gradually phrased in by banks around the world.

The global financial institutions need to address other significant issues in 2011, including:

Globalization

The globalization of financial markets and systems during the past decade has presented challenges as well as opportunities within the banking and securities sectors. As a result of new global security regulations, the capability of banks to produce fee income by re-packaging credit books has been eliminated. New consumer protection laws prevent the sale of complex derivatives to many customers. Proprietary trading by banks had been outlawed in many areas. To what extent will the above affect private global investments by banking institutions in developed economies? Time will tell.

Regulatory Complexity

Expect the banking and securities sectors to experience rising regulatory difficulty in various areas. As such, it is crucial that financial organizations stay abreast of developing rules. Additionally, they would have to update and refine their risk management systems. Additional consumer protection laws may be promulgated to guard against predatory lending practices. At the supervisory level, new rules and regulations will be established to guide examiners and supervisors for when they conduct their onsite evaluation of financial institutions.

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M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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