Martino Agostini

Technology, Business, Strategy … so what ?

Martino Agostini

Technology, Business, Strategy … so what ?
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Financial Turmoil and Innovation: A Review of Recent Failures in Banking and Crypto

Financial Turmoil and Innovation: A Review of Recent Failures in Banking and Crypto

In recent times, the financial system has witnessed a series of failures that have exposed deep cracks and highlighted the need for intervention to prevent dangerous contagion.

While immaturity and irresponsibility have plagued the crypto industry, traditional banking institutions have been beset by mismanagement, fraud, and a limited internal and external control mechanism. To unpack these problems, it is helpful to consider the cases of crypto and banking separately. Both industries face similar challenges, with mismanagement and fraud being significant issues, compounded by the lack of internal and external controls. However, instead of focusing on individual banks or companies, the focus must shift to the entire system and the institutions responsible for its oversight. While some regulatory frameworks, such as the Swiss Corporate Governance or discipline related to the publication of annual reports, seem adequate in theory, the failure of Credit Suisse and other banks indicates the need for better internal and external audits. The proposed regulations in Germany, following the Wirecard scandal, could be a decisive step in reducing risks and providing more responsible management.

In the short term, avoiding exposure to crypto until traditional banking institutions return to stability seems prudent. This approach is being followed by the SEC in the US, which is limiting the contagion risk of TradeFi and DeFi. However, this could also present an opportunity for large crypto companies to build a possible future bank by combining their resources and following the existing financial services and securities rules.

The financial services industry has experienced an impressive growth trajectory over the past decade, and banks will need to adjust their business models to remain profitable. Unfortunately, this sector will also require deep layoffs and sell-offs, similar to what has occurred in the tech industry. Professional services firms, such as Accenture, have already initiated this process, which is expected to accelerate in the coming quarters.
The wind of change has even hit the VC sector, and the fall of Silicon Valley Bank has prompted the need to redesign distribution channels for startups. The creation of a new type of bank, serving as a platform for angel investors and VC, could be a way to maintain the gravity of innovation in the industry. As the geopolitical landscape shifts, investment opportunities will also reshape, with new technologies such as GPT-3 embedded in all applications to increase productivity.

In conclusion, the recent failures in both the banking and crypto industries highlight the need for better internal and external controls and the importance of creating new institutions that serve as a platform for innovation. This will require deep layoffs and sell-offs in the traditional banking sector, but it will also present new opportunities for large crypto companies to combine their resources and build a new type of bank for the future.

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