Commercial banks are likely to fail in the near future, a new report says.
The report, from investment bank Bernstein and investment bank Morgan Stanley, also found that the risk of commercial banks losing billions is higher than the risk from a bank’s exposure to sovereign debt, which can also be a concern for investors.
“We expect to see the commercial banking industry lose billions in the coming years,” Bernstein’s senior market strategist Michael Merten said.
“There’s an awful lot of capital and risk that could be lost if commercial banks don’t change course and become more resilient to risks like sovereign debt and contagion.”
A banking crisis is the next logical step for commercial banks.
The report says a bank is expected to lose $7.4 trillion in the next two years if it fails to meet its capital requirements.
“The risks posed by commercial banking are increasing and will likely continue to increase in the years ahead,” Bernstein analyst Brian Mertens said.
The banks that have the most to lose from a banking crisis are the biggest, with assets of $13.2 trillion, according to the report.
The largest banks include Barclays, Citigroup, HSBC, JP Morgan Chase and UBS.
The US Federal Reserve will soon release its next policy report, which will be critical for policymakers as they consider the impact of a global financial crisis.
“The Fed’s policy report will likely focus on the extent to which central banks and their policy makers are able to limit the economic damage to the financial system, including financial stability,” Bernstein said.
“This could include changes to capital ratios, or other measures that could reduce risk.”