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Banking chiefs warn of market risks amid geopolitical tensions and regulatory pressures

The top executives of some of the world’s largest banks have expressed their concerns about the potential impact of geopolitical conflicts and regulatory changes on the global financial system. They spoke at the Global Financial Leaders Investment Summit hosted by the Hong Kong Monetary Authority on Tuesday, November 7, 2023.

Geopolitical uncertainty poses a threat to market stability

Morgan Stanley Chairman and CEO James Gorman said that the trigger for the next global financial crisis is likely to come from the geopolitical or political space. He cited the challenges to democracy in some countries around the world, without elaborating.

The comments come as an unfolding Israel-Gaza conflict adds uncertainty to the global economic outlook, while the Russia-Ukraine war drags on and Sino-US tension simmers despite efforts to bring leaders of the two superpowers closer.

Deutsche Bank CEO Christian Sewing said that markets have largely been resilient in the face of global events, but this could change. “My biggest fear is that one more geopolitical escalation – and that can happen pretty quickly – and the markets at some point in time actually give up the calmness, and then you have a market event,” Sewing said.

Banking chiefs warn of market risks amid geopolitical tensions and regulatory pressures

Regulatory tightening could hamper economic growth and innovation

The global banking chiefs also voiced their concerns in an unusually aggressive joint effort to push back on a set of stricter banking rules. Widely referred to as the “Basel Endgame”, a sweeping overhaul that would direct banks to set aside billions more in capital to guard against risk was brought forward in July.

“While we want the system to be safe and sound, when I looked at these rules I think they go way too far,” Goldman Sachs chief executive David Solomon said, referring to the banking regulatory tightening. “If implemented, the way they are outlined, it is a significant additional economic tightening on the system at the time when I don’t think that’s in the best interest of economic activities and growth,” Solomon added.

In the US, the banking regulator has announced sweeping proposals to impose stricter capital rules for big lenders following runs on smaller banks earlier this year, whereas the industry has argued there is no justification for significant capital increases.

Banks need to adapt to changing customer needs and preferences

The banking leaders also discussed the challenges and opportunities posed by the changing customer behavior and preferences, especially in the wake of the COVID-19 pandemic. They highlighted the importance of digital transformation, innovation, and sustainability as key drivers of growth and competitiveness.

HSBC Group Chief Executive Noel Quinn said that banks need to be more agile and responsive to the needs of their customers, who are increasingly demanding more convenience, personalization, and value. He said that banks need to leverage data and technology to offer more tailored products and services, as well as to enhance their operational efficiency and risk management.

Citigroup CEO Jane Fraser said that banks need to embrace innovation and collaborate with fintechs and other players to offer more solutions and choices to their customers. She said that banks need to invest in new capabilities and platforms, such as cloud computing, artificial intelligence, and blockchain, to create new sources of revenue and competitive advantage.

Standard Chartered CEO Bill Winters said that banks need to align their strategies and operations with the global agenda of sustainability and social responsibility. He said that banks need to support the transition to a low-carbon economy, as well as to promote financial inclusion and diversity.

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