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Editor’s blogOctober 11 2013

Making a show of crisis management

While the likelihood of a US default remains low, banks are still having to go to great lengths to show that they are prepared for a possible default scenario.
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The US's Republicans may have succeeded in shutting down the US government and sending thousands of employees home, but for many bankers their workload has increased. The chances of a US default may be low but every bank still needs a strategy to deal with the fallout if it does happen. With all the post-crisis emphasis on risk management and scenario testing, imagine the criticism a bank would receive if it was unprepared for the possibility of the debt ceiling not getting raised on October 17.

While shutting down the government is contradictory from an economic viewpoint, and so rather suiting the fiscally conservative Republicans who determined it, could the impact be offset by the bankers' extra workload, considering the additional man hours involved and disposable income generated (except that government employees are more likely to spend it and bankers more likely to save it)?

Certainly, when it comes to risk and compliance professionals, bank boards are looking at the numbers and not saying can we do with less but should we have more. In particular, they do not want to have fewer than their rivals. Clearly, the number of such staff has become a cocktail party boasting matter.

Meanwhile, as the International Monetary Fund (IMF) meets in Washington, DC, this weekend (Friday, October 11), its latest World Economic Outlook rows back on earlier calls for more fiscal stimulus in the UK and the US. Maybe the writing of professional reports about unlikely outcomes is the contemporary equivalent of digging holes and filling them, and so these economies with their regulatory torrent were much better stimulated than previously thought.

The IMF, by the way, has indulged in its own scenario planning and has a downside scenario of 20 million lost jobs globally if reforms are not enacted, the eurozone does not recover and the US political stalemate is not resolved. To counter that, one would be expecting a bit much of professional services. So much better then if politicians of all stripes in all jurisdictions would only focus on reform and let bankers get back to their day job.

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