Banking & finance - Banking collapse a possibility.

(From Financial Director)

Byline: Jules Stewart.

In banking, systemic risk is a label for ultimate disaster. So, when Douglas Flint, FD of the world's third biggest bank by market capitalisation, dared mention it at a recent international banking conference, bankers noticed.

Flint said HSBC was increasingly worried about the surge in bad debts at a number of international financial institutions (presumably not at HSBC). "It is something we are concerned about because of the systemic implications," he said, drawing a gasp from the audience. "We do worry about systemic risk."

Flint made it clear that the unbridled investment spree by US pension funds and the dotcom collapse of the late 1990s could yet bring some nasty surprises for the banks. Clearly, there is a danger of collapse.

"The fact that Germany's third largest financial institution, Commerzbank, is now worth less than Britain's smallest bank, Northern Rock, says the market doesn't fancy the bank's chances of survival if German bad debts come home to roost," says Norman Bernard, director of First Consulting.

"German and Japanese banks in particular have sufficient bad debt problems to make them look vulnerable."