Barrie Wilkinson, a London-based partner at the consulting firm Oliver
Wyman, believes we're headed for another financial crisis in 2015.
In a report unveiled during the World Economic Forum's annual meeting
in Davos, Switzerland, Wilkinson argues that government regulators--in
superficially combating the excessive risk-taking that contributed to
the 2008 financial crisis by raising capital requirements for banks and
banning lucrative activities like proprietary trading--may actually be
driving financial institutions into the shadow-banking sector, where
they can reap the higher profits their shareholders demand.
couches his thesis in a hypothetical: A British bank called Garland
Brothers relocates to Singapore to escape U.K. regulators and, along
with many other Western banks, expands aggressively into emerging
markets, fueling a commodities bubble. When commodity prices crash,
Garland Brothers declares bankruptcy and debt-saddled Western
governments are unable to diffuse the ensuing banking crisis. The rest
of the story isn't pretty.
The report offers a rather dismal assessment of the prospects for
In a game of cat and mouse between regulators and shadow banks, the mice will always win.
There are far more mice; they are typically better informed and motivated than the cats; and the extraordinary complexity and the global scope of the industry give the mice a nearly limitless supply of nooks and crannies to hide in.
So what are the schools of thought on this new crisis scenario?
- Wilkinson Is the 'Loneliest Man in Davos', states
Bloomberg's Christine Harper. She notes that Wilkinson's "message
clashed with the optimistic tone of many at the center of the meeting,
who were eager to emphasize the progress made after two years of
hand-wringing in the wake of the 2008 financial crisis."
- Is He Right? wonders
Benzinga's Gary Cassady: "The Dodd-Frank Act created many new
commissions and regulatory agencies in response to the crisis. How
exactly will the new reforms prevent other loophole-mining or sneaky
ways around the rules?"
- This Sounds Like a Likely Scenario, asserts
Chris in Paris at AMERICAblog: "The financial reform was gutted by the
bankers who threw money at lobbying to limit the extent of the reform.
The Democratic reform was mild but now we have Republicans in the House
who want even less oversight. Of course this can't end well."
- I See Two Solutions, declares Tony Jackson at The Financial Times:
In the end, there are only two ways of restoring sanity to a mad system. The first is that banks and their shareholders come to accept that the banking supercycle really is over; that the old returns are no longer achievable, and cranking up the risk is ultimately futile.
The second way, of course, is another and bigger crash.