Risk management shouldn’t be limited to regulatory minimums
Indian banks may pass health checks but future crises will probably stem from new sources of risk
Root causes of financial crises have similarities. Consider three of the past 15 years: the global financial crisis (GFC), Indian corporate-loan crisis and Silicon Valley Bank (SVB) failure. Seeds for these were sowed by faulty assumptions, bolstered by narratives and selective data usage, that seemed reasonable at one time. For the GFC, US house prices were assumed never to fall. For the Indian banking crisis, it was assumed that Indian growth was decoupled from the world’s and 6-8% per year was up for grabs. For SVB, it was that US interest rates would remain low for long; so borrowing short-term funds at ultra low rates and exposure to long-term assets with higher yield looked reasonable.