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60% of Banks Will Not Survive Next Crisis: McKinsey & Company

Saad Ullah

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Financial consultant McKinsey & Company warn that a significant portion of banking institutions will not be able to cope with a global recession, which according to many, is looming in the near future.

Global Recession

In the last decade, the society has changed a lot. Increased access to a more digital world through high speed connectivity, distances and borders have truly lost their meanings. McKinsey & Company analysts believe that the banking sector is heading towards another downfall,

“A decade on from the global financial crisis, signs that the banking industry has entered the late phase of the economic cycle are clear: growth in volumes and top-line revenues is slowing, with loan growth of just 4 percent in 2018—the lowest in the past five years and a good 150 basis points (bps) below nominal GDP growth. Yield curves are also flattening. And, although valuations fluctuate, investor confidence in banks is weakening once again.”

The report goes on to say that nearly 60 percent of banks in the world are not strong or prepared enough to survive the coming crisis. McKinsey & Company claim that banks are not growing fast enough to keep the economy buoyant and will eventually collapse. The financial adviser point the blame mostly on the centralized working model of the institutions. Centuries ago, banks introduced a centralized method to ensure a smooth flow of money, but instead of adapting to the changing world, they have only added layers of bureaucracy and bottlenecks that will be their demise.

Is Cryptocurrency the Answer?

The McKinsey & Company  report even goes on to suggest that this crisis might prolong over a long period of time, such that ultra low or even negative interest rates might fail to reverse changes. Indeed, it suggests that these might cause more damage.

The recession of 2008 shocked the world, with major banks around the world seeking bailouts from governments to survive. Lehman Brothers, the fourth largest investment bank in United States, with a 158 year history, filed for bankruptcy. Following the crises, the infamous Satoshi Nakamoto released Bitcoin. The decentralized system was designed to counter the flaws in the current banking system. A decade later, banks still have only started to adopt the technology. Nearly all are still centralized and are built on rules that were the bleeding edge in the 18th century.

Since their inception, cryptocurrencies have time and again shown that the technology has characteristics that cater to the major flaws modern banking has. One of the most polar opposite of cryptocurrencies and the modern financial system is the deflationary model. With only a limited number of tokens and coins, they supply is dwindled, ensuring that value of the digital money rises and does not see inflation.

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