Regulators are delaying the introduction of new regulatory burdens until the banks are strong enough to bear them, according to Oliver Wymans 13th annual State of the Financial Services industry report, issued at the World Economic Forum in Davos.
The report states that financial firms long term future remains uncertain and that a relapse is a possibility. It will depend on the regulatory environment in which they will operate and on the health of the real economy.
The crisis was the financial equivalent of a major medical trauma. Although the intensive care provided by governments and central banks helped most financial institutions survive, the industry is still in recovery, commented Scott McDonald, CEO, Oliver Wyman Financial Services. The long term health of financial institutions remains uncertain, especially given President Obamas proposals for restructuring the industry.
According to the report, that draws upon Oliver Shareholder Performance IndexSM and the annual CEO Survey, sees most financial institutions residing in the convalescence phase of recovery. Central banks are providing them with a congenial environment in which they can rebuild their capital strength before launching new regulation.
However, the regulators must be careful of not waiting too long. According to the CEOs surveyed, there is a 32% chance of a double dip or W-shaped recession, and 60% do not expect serious economic recovery until 2012 or later. Their average expectation for their firms long run growth is 8%, down from the pre-crisis rate of 12%.
The report can be found here