FSA warns banks “vulnerable to further shocks”

by Gill Montia

Story link: FSA warns banks “vulnerable to further shocks”

In its 2009 Financial Risk Outlook report, the Financial Services Authority (FSA) has warned that the UK’s banks need to adjust their business models to operate successfully in difficult conditions in both the financial markets and the real economy.

Despite a Government rescue package that has so far involved cash injections totalling £37 billion and hundreds of billions of pounds in guarantees, the regulator believes banks remain “vulnerable to further shocks”.

The report also ponders the links between the bonus culture and high risk taking although the watchdog admits it is “hard to prove a direct causal link”.

However, in future the FSA wants UK financial institutions to focus on medium-term survival and sustainable growth, rather than short-term profitability.

The report goes on to warn that the recession may be deeper and more prolonged than expected and points out that a “loss of confidence in financial markets can have a long-term effect on the willingness of consumers to engage with financial services”.

Finally, the FSA alerts banks to the danger of the recession increasing the likelihood of employees and consumers committing fraud against banks in an attempt to “maintain their existing lifestyles, replace lost funds or meet increasingly challenging revenue and sales targets”.