Banking sector weaker than before global financial crisis

Dubai: The banking sector is still vulnerable despite new measures to make it more resilient following the 2007-08 global financial crisis.

According to the latest report from the World Economic Forum (WEF), concerns still remain regarding the financial sector, including new sources of potential risk coming from emerging economies.

“Despite the actions taken in the aftermath of the crisis — restructuring and regulation or macro-prudential policies to increase capital requirements and clean up balance sheets — the banking sector has still not fully recovered,” the report said.

The Global Competitiveness Report 2017-2018, which came out on Tuesday, said that growing segments of the financial system not subject to regulation are also a potential source of vulnerabilities. It added that the scope for public sector intervention has narrowed.

Analysis of the Global Competitiveness Index showed that, despite better asset-to-equity ratios, the banking sector is weaker than before the crisis.

“In general, there is still too much debt in parts of the private sector, and top global banks are still ‘too big to fail’. The GCI’s soundness of banks’ indicator has not yet returned to its average pre-crisis level in any region, though the picture in individual countries and sub-regions varies considerably,” the report said.

It added that the largest 30 banks hold almost $43 trillion (Dh158 trillion) in assets, compared to less than $30 trillion in 2006.

The report highlighted possible efforts by the US government to reduce the provisions of the Dodd-Frank Act, a move that may lead to the “re-emergence of fragilities that post-crisis regulation aimed to tackle.”

Discussing global economic issues, the WEF described the global economy as having started to show signs of recovery, pointing that policymakers are still concerned about prospect for future economic growth.

“Governments, businesses and individuals are experiencing high levels of uncertainty as technology and geopolitical forces reshape the economic and political order that has underpinned international relations and economic policy for the past 25 years,” said Richard Samans, head of global agenda and member of the managing board at the WEF.

The report also cited increasing inequality and the impact of globalisation, both of which are creating predicaments for world leaders when it comes to economic policy.