A potential global financial crisis has certainly been a hot topic for a while now. Predictions and expectations are made from most economic outlets and recently, another one came from McKinsey & Co consultancy. The company reported that most of the world’s banks are not prepared to survive a potential downturn.
Banks Are Not Ready?
McKinsey’s annual review of the financial industry says that we have entered the late phase of an economic cycle.
A significant decrease is experienced in the growth volume and the top-line revenues, as loans show the lowest advancement in the last 5 years. Investor confidence in banks is generally declining as well and the yield curves appear to be flattening. A senior partner at the firm pointed that out:
“We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape. In the late cycle, nobody can afford to rest on their laurels.”
Moreover, the risk costs across the globe are at an all-time low. This signals that banks have to renew their focus on risk management and factor in the increasingly digital world.
Negative Rates From Banks
Another major sign can be extrapolated from the negative interest rates in lots of countries. Meaning that instead of receiving money on deposits, the banks are charging the customers with fees.
As CryptoPotato reported, such rates have been inducted across Europe – Switzerland, Denmark, Sweden, Germany, and others. The Bank of Japan has also implemented this approach a few years ago.
Even though the rates in the U.S. are over 1% now, the former chairman of the Federal Reserve believes that the country will soon follow.
The report from McKinsey shows technology as the way out of the potential financial crisis for banks. As most of them are considered weak, the company offers examples such as Apple, Amazon, and Google in the U.S. and Ping An in China. Fintech financial services have emerged over the last decade, capturing new business areas such as credit cards. Those companies allocate more than 70% of their budget towards information-technology innovation, while banks spend just 35%.
If technology is the way forward, Bitcoin should probably be considered as an option as well. When it comes down to inflation rates, for example, the largest cryptocurrency by market cap has a preprogrammed one of 3.7% which will drop to 1.8% next year after the Bitcoin Halving. It’s also a scarce digital asset with a limited supply only to decrease from now on.