NEW YORK–More than half the world’s banks could fail in the event of a global economic slowdown, according to a new study by McKinsey and Co.
According to McKinsey, return on equity has fallen below their costs for nearly 60% of banks, which the study notes is financially unsustainable in the long run. A downturn in the economy, or even a spread of negative interest rates around the world, could make things even worse, the study suggests.
“And banks face new competition from all corners, from fintech start-ups with lower costs to tech giants muscling into lucrative banking activities,” said Bloomberg in its analysis of the new study.
“We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,” Kausik Rajgopal, a McKinsey senior partner, told Bloomberg. “In the late cycle, nobody can afford to rest on laurels.”
Other Recommendations
Other recommendations made in the report:
- Banks should outsource more functions, such as trading and compliance
- Banks need to cut costs, including through zero-based budgeting
- Banks need to continue to grow, including through acquisitions
The full report can be found here.