“History of stability”: the financial sector has helped absorb global crises
The financial services industry is a “story of stability” as there has not been a major financial crisis since 2008, according to a report by US consultancy Oliver Wyman.
He published The State of the Financial Services Industry 2022 which explores how the financial sector has changed over the past decade and found that the financial system has been a “shock absorber” for major global issues.
“First and foremost, there has been no major financial crisis since 2008,” the report said. “This is a far cry from the experience of the previous 20 years, when a reasonably large crisis hit the financial system every four to five years.”
However, the report said it was “by no means” calling for an end to the financial crises.
“The buildup of leverage in the economy after a decade of cheap money is concerning, and as most banks look to future scenarios, stagflation – weak economic growth combined with underlying inflation – is a very difficult possibility for economies and could trigger credit deterioration.”
However, the report says the evidence is that the financial system is in better shape than “at any time in recent memory” to manage and continue to support economic growth.
He noted actions taken during the Covid-19 pandemic, sanctions against Russia due to the war in Ukraine, and action on climate change via net zero policies as actions taken that demonstrated the resilience of the economic growth.
“Covid-19 was found to create credit losses well below expectations,” the report said. “The financial system has played an important role as an economic shock absorber, with excess capital capable of absorbing an expected high level of economic losses that did not occur, allowing financial services companies to rewrite much of what ‘they had written.
Oliver Wyman, global head of financial services, Ted Moynihan, said the financial services sector had enjoyed a good decade without major crises, while playing an important societal role in Covid-19 and on the climate.
“The decade has also seen a sea change in the financial services landscape, towards a broader industry with more companies acting in coopetition with each other, and overall a shift in relative value from incumbents to new players” , he said in a media. press release on the report.
However, with rising interest rates and market volatility, Moynihan anticipates different conditions over the next few years “with the benefits for companies that can anticipate and pivot to new sources of value growth.”