The problems that have beset Cyprus this year have an all too familiar ring to them, but the post-crisis reaction to its economic problems by Iceland show how a full investigation into the causes of a financial crisis are essential to enable a new system that is fit for purpose to be established.
The Bracken column
The Bracken column is named after Brendan Bracken, the founding editor of The Banker in 1926 and chairman of the modern-day Financial Times from 1945 to 1958.
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More radical steps are needed in reforming the structure, ownership and incentives for banks to make them a more attractive long-term investment.
The reputational damage from governance scandals can very rapidly turn into financial damage for banks and their shareholders.
Liquidity has the unpleasant habit of vanishing when it is needed most, and liquidity requirements for banks have the potential to make this problem work. The recent decision of the Basel Committee to broaden the set of assets eligible for the liquidity coverage ratio alleviates some of the issues – but more work is needed.
While regulation provides strong impetus to improve risk management systems, banks can use it as an opportunity to improve their strategy and overall competitiveness.
Bank failures, especially in emerging markets, tend to have common characteristics that resist the best efforts of regulators.
The UK's Funding for Lending Scheme may be a politically attractive way to incentivise banks to step up lending to households and companies, but it could have some unintended side-effects.
Greater use of secured funding, depositor preference and bail-in regimes mean that bank failures and defaults on unsecured bank debt are likely to converge, while recoveries fall.
The troubled past of some securitisation products is making the comeback of this financial tool in Europe slow and fragile, but unless a bridge can be built from the current situation to an active securitisation market, the hopes for any growth in the continent will dim dramatically. Maybe the new Prime Collateralised Securities label can be that bridge.
Banks in the United Arab Emirates are generating decent profits, but there are still significant underlying risks in the operating environment that all market participants need to address.
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