THE INTERNATIONAL management consultancy firm McKinsey & Company has published a global banking review which found that the majority of banks worldwide ‘may not be economically viable’.
Their review found that over half the world’s banks do not produce enough profit to cover the cost of their lending and that they will not survive any economic downturn.
McKinsey split the world banks into four separate groups: the giant global banks who occupy 20% of world banking, followed by smaller but ‘resilient’ banks who take up 25%.
This is then followed by the two identified as ‘troubled’ banks, weaker than the others, and finally ‘challenged banks’ which make up about 35% of the global banks. These last two, McKinsey reckons, are complete basket cases that will collapse any day now.
In fact, the McKinsey review is being overly optimistic in saying that only 45% of the world’s banks are on the brink of collapse and that the crisis is confined to banks in ‘difficult’ areas like Europe.
Yesterday HSBC, Europe’s biggest bank, recorded an 18% drop in pre-tax profits sending its shares plummeting. In August the cracks in the big banks emerged with the announcement of massive job cuts.
HSBC announced plans to sack over 4,700 staff while the giant German Deutsche Bank announced it was laying off at least 18,000 people in an attempt to cut costs by six billion euros and the French Societe Generale plans to axe 1,600 jobs to reduce costs by 500 million euros. Nearly 30,000 banking jobs are being shed this year not just in Europe but across the US.
The US Citigroup bank also announced major cuts as they struggle to make a profit in the face of low interest rates with Bloomberg reporting that the five biggest US banks saw profits fall this year.
McKinsey blames low interest rates for cutting the profitability of the banks.
In the case of the European Central Bank (ECB) it has even imposed a negative interest rate of -0.5% meaning depositors are actually charged for depositing money with the banks instead of earning any interest on their deposits.
This has led investors, pension funds and the like to flee from the banks in a desperate scramble to ensure continued profits through the so-called ‘risky’ financial gambles of the stock market.
The review also laments the various laws enacted by governments in the wake of the banking collapse of 2008 which were designed to convince people that the banks could be tamed and brought under control.
These regulations were supposed to insist that banks hold reserves that at least cover some of their lending as opposed to the days before the crash when US banks only held about $8 in their vaults for every $100 they lent.
The review in short, is making a call for a return to the days before the 2008 crash of high interest rates and no restrictions on the banks.
But any increase, even a slight one, in the interest rate would immediately bankrupt 40% of the corporations in the eight leading economies – as the IMF warned last week.
This is the ‘doom loop’ that is strangling world capitalism – increase the interest rate to ‘save’ the banks and the massive corporations that exist entirely through running up mountains of debt will collapse overnight.
In fact, nothing can save the world banks or prevent the collapse of industry as capitalism crashes under the weight of the debt time bomb. Looming over this is the powerful working class which is rising up across the world against capitalist austerity imposed to bail out the banks from the earlier crash.
From Latin America through to Europe and the Middle east workers and youth are taking mass action in demonstrations and strikes that have gone beyond limited protests and been transformed into popular movements to bring down governments which force austerity on the people.
The world banking collapse will intensify the class struggle across the globe and drive forward revolution in every country.
The victory of the world socialist revolution requires the building of the revolutionary leadership, sections of the Fourth International, in every country.