The risk of another global recession sparked by a collapse in the euro could lead to a renewed banking crisis, a financial think-tank has warned. There will also be further job losses in the sector as banks struggle to retain profitability, it predicted.
The annual Banking Banana Skins survey published today by the Centre for the Study of Financial Innovation and PricewaterhouseCooper puts macro-economic risk at the top of a list of 30 possible risks to banks.
The list was put together by asking more than 700 people involved in the banking industry in 58 countries about the dangers facing the sector.
The main cause of anxiety is the eurozone crisis with the risk of sovereign default in many countries. A euro collapse would send shock waves far beyond Europe, prompting bankers in countries such as the US, Canada, China, Argentina and Australasia to put the crisis at the top of their list of concerns.
The consequences of a crash would be large credit losses, which bankers put at number two on the list. That would be followed by a funding crisis. Bankers put access to liquidity fresh capital next on the list.
David Lascelles, the survey's editor, said: "The picture painted is very bleak. It shows a fragile banking system beset by major threats and uncertainties."
Those surveyed also expressed worries about the increase in political interference, such as David Cameron's involvement in British banks' bonus payments. However, fears about meddling politicians have lessened, falling from number one on the list this time last year to number five.
Regulation, too, remains a concern for bankers, presumably longing for the days of "light touch" supervision, one of the factors blamed for the onset of the global banking crisis.
Andrew Gray, banking partner at PricewaterhouseCooper, said: "Banks are clearly worried about the dangers posed by continued turmoil in the eurozone, the threat of a further credit squeeze and uncertainty created by continued regulatory changes."
He warned that banks will struggle to generate adequate returns across their businesses. "Banks will be forced to reshape their businesses, and further job losses across the sector seem inevitable as banks seek to drive down costs,"Mr Gray said.