The Financial Crisis – Answers Given by Professor Dr. Bernd Rolfes
Why did so many financial institutions seem to be ill-prepared for the crisis?
Many financial service providers simply did not expect such enormous turbulence in the markets. What is more, they partly engaged in transactions with a highly complex risk structure that was hardly understandable – even for the enterprises themselves. Additionally, a significant type of risk that has been neglected up to that point had decisive impacts in this crisis: the liquidity risk.
Will banks have to radically revise their business models?
In view of the severity of the losses suffered by many credit institutions, it is indeed reasonable to ask this question. Now many of them have to scrutinise their business model – no matter how painful this will be. Some banks may only need to take action in specific fields. However, even they should use their time for taking stock without any reservations because the forthcoming recession will make the market environment even more challenging. Additionally, I see a great need for action to be taken particularly in the fields of bank controlling and risk management to ensure that the lessons learnt from this crisis are adequately considered in future business decisions.
Does such a reform of the market also open up opportunities?
Certainly. The market was considerably jumbled up by the crisis. A few too risk-loving competitors have considerably lost market power or even disappear altogether. This offers the opportunity to break sclerotic market structures. A crises also makes it possible to completely restructure a credit institution and its strategic business fields without the markets immediately raising exaggerated demands in terms of time or earnings. Hence, those who take timely and targeted action may also emerge as winners from the crisis.
