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English for international banking post-2008

Julie Pratten, author of Absolute Banking English, discusses the impact of the global banking meltdown on English in the banking sector.

Since the global meltdown of 2008, it has become more important than ever for financial

experts to be able to deliver a coherent message in English. With confidence in bankers at

an all time low, they must go the extra mile to convince their clients, their investors, and

their shareholders that they are competent. At the same time, finance has become the

focus of daily conversation, hence most business professionals need to have some

knowledge of financial English to be able to communicate in this area.

Even the general public are much more clued up about finance. The man is the street knows

many specialist terms and understands quite complicated banking scenarios. Toxic assets,

sub-prime mortgages, risk asset weightings, quantitative easing; you’d be surprised but all

these terms have even been featured in tabloid newspapers accompanied by cartoons of

Helicopter Ben; an image of the Governor of the US Federal Reserve, Ben Bernanke,

throwing bundles of banknotes from a helicopter to bailout the ailing economy. In the UK,

people used to be rather complacent about the flaws of other countries’ banking systems.

When they heard Greece was in trouble, they presumed it was only other countries whose

bankers offered highly dodgy credits (in terms of risk) until someone twigged that the cross-

border aspect, i.e. systemic risk, had a domino effect on all banks and can have a

devastating impact on the economy.

In terms of global communication, bankers’ enhanced knowledge of financial English and

ability to express themselves fluently and accurately is the key to gaining a competitive

edge. Some of the main issues that have been constantly discussed in the business and

banking community have been responsible lending practices, accountability and

transparency. In short, this means banks have to be more cautious in their lending decisions

and in the case of negligence, they need to own up and face the consequences of their

mismanagement. Absolute Banking English stimulates discussion on a range of sticky

scenarios that have arisen where the finger can be pointed at bankers, and challenges them

to defend their corner.

Author Insights

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One of the topical issues of the global banking community which is focused on in Absolute Banking English is bank stress. We are all susceptible to stress and after the global meltdown of 2008 several banks became chronic sufferers. Bank stress is a disease which last year hit the heart of the economies of several European countries and is still at epidemic levels. For some banks, this stress even led to their collapse. With the banks’ image in the gutter, bankers have to smarten up their act and go the extra mile to win back lost confidence. Banking authorities have also implemented a number of measures to supervise banking activities more thoroughly to make sure that past mistakes are not repeated.

Here are some activities which you can use with your students, focusing on bank failure and stress testing.

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Focus on Bank Failure

Lead in

1. What is bank failure and what causes it?

2. How can bank failure affect the economy of a country?

3. What steps can the banking authorities take to prevent bank failure?

What is bank failure?

With a partner, complete the description of bank failure using the words in the box below.

Bank failure occurs when a bank is unable to meet its (1) ....................to its depositors or other (2) .............................because it has become (3) ......................or too illiquid to meet its liabilities. More specifically, a bank usually fails economically when the market value of its (4) ..........................declines to a value that is less than the market value of its (5) .......................... . The insolvent bank either borrows from other solvent banks or sells its assets at a lower price than its market value to generate liquid money to pay its depositors on demand. This situation creates a panic among the depositors which leads a bank (6)....................... as more depositors (7) ....................their funds.

The failure of a bank is a serious issue in any country because of the interconnectedness and (8) ..........................of banking institutions. Governments fear that the (9) ..............................effects of the failure of one bank can quickly spread throughout the (10) ........................and possibly lead to (11) .....................risk which could cause the whole economy to (12) ....................

assets creditors fragility spill over liabilities collapse

run systemic insolvent obligations withdraw economy

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Stress Testing For Banks

With a view to tackling fragilities in the banking sector, financial authorities such as the European Banking Authority (EBA) devised a series of stress tests for banks. The aim of these tests is to assess the ability of financial institutions to withstand adverse market developments, as well as to contribute to the assessment of systemic risk in the EU financial system.

1 Check your understanding

Read the short text above and complete these notes.

1.To deal with weaknesses in the financial world, the leading authorities

....................................................................................................................................................

....................................................................................................................................................

2.The two main aims of the stress tests

a...................................................................................................................................................

....................................................................................................................................................

b..................................................................................................................................................

....................................................................................................................................................

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2 Check the facts

Now read this short text about the test procedure and decide if the statements below are True or False.

Stress Testing of Banks: The Procedure

The EBA conducted the bank stress test in European Union member states and Norway in the first half of 2011 in cooperation with national supervisory authorities, the European Central Bank (ECB) and the European Systemic Risk Board (ESRB). 91 banks participated from 21 countries, which represent around 50% of the total assets of each respective national banking sector or 65% of the assets of the entire European banking system.

In recent years, due to the confidence-starved market environment, there has been mounting pressure on banks to create transparency about their resilience to shocks such as a serious economic downturn, a decline in asset values or a rise in country risk. The aim of publishing detailed results of the stress test was to improve this atmosphere of uncertainty; however, it is important to note that the bank stress test is based on hypothetical scenarios, that is, ‘what if x happens?

1 The stress test was undertaken in 2011 by various Central Banks in EU countries and Norway.

2. The ECB hopes that stress tests will help to restore the lack of confidence in banks.

3. Nowadays banks are urged to improve transparency on their soundness in the case of financial turbulence.

4. One of the limitations of the stress tests is that they are only based on assumed scenarios.

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3 Synonyms

Match the words in bold in the text with similar words or expressions in the box below.

Results of Stress Testing

GERMANY All 12 German banks that participated in last year’s bank stress test conducted by the European Banking Authority (EBA) managed to make the grade.

The banks achieved the minimum core tier 1 capital ratio of 5.0% in the adverse scenario required to pass the bank stress test. This EBA requirement is well above the current minimum supervisory ratio applicable in Europe.

Sabine Lautenschläger, Vice-President of the Bundesbank commented: “The results of the bank stress test show that the German banks in the sample are sufficiently capitalised in the adverse scenario, and their capitalisation is also robust under these pessimistic assumptions.”

On a similar note, head of banking supervision at BaFin Raimund Röseler pointed out the positive stress test outcome underscores successful efforts implemented by many banks last year to fortify their capital base.

ITALY The five Italian banking groups that participated in the EU stress test achieved the threshold of 5 per cent; banks involved represent more than 62 per cent of the total assets of the Italian banking system. Results endorse the adequacy of Italian banks' capital to mop up the shocks coming from further deterioration of macroeconomic and market conditions.

However, the banks’ health check was not rosy in all of the EU member countries. Five banks in Spain, two in Greece and one in Austria flunked the test.

confirm failed have adequate funds absorb adopted adverse expectations explained... passed the tests reported BIS Tier Capital Requirement highlights carried out decline limit

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4 Review

Complete the sentences, using words and expressions from the texts. The first letter is given.

1 German banks p........................ in the European bank stress test demonstrated their r........................ even though the stress scenario was more severe than in 2010.

2 Most Italian banks a............................. the required core tier 1 capital r...............of at least 5.0%.

3 The aim of such tests is to a............. the robustness of financial institutions to a.................. market developments.

4 Critics of the health check say that it fails to reflect market e.................................... that some EU countries will default on their debt. Another problem is that the stress tests are merely h.........................................., so they only represent fictional scenarios.

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5 Vocabulary Guessing Activity

The text below contains some nonsense words in bold. With a partner discuss what words

could be used to complete the text.

Bank of Iceland Made Serious Mistakes

The Special Investigation Commission (SIC), responsible for carrying out (1) pliff in the case of bank (2) flitts, reported that the Central Bank of Iceland had made a series of (3) praffs before the banking (4) segg in October 2008. The report reached the (5) lutt that the bank had acted carelessly. Proposals on the bank’s actions were not (6) ruyy to the government, and the bank made a serious error when its employees forgot to (7) drudd a loan channel at the Bank for International Settlements in Basel. When they realized the (8) stamm error, it was clear that the Central Bank would have to (9)increase its access to foreign currency. The loan channel would have (10) ruww USD 500 million (EUR 366 million). The bank immediately (11) mogged a renewal of the loan channel; however, this was (12) norgd by the BIS. The report also (13) gepp that the bank had sent a formal request for a currency (14) sroff agreement with the Bank of England but this request was also refused.

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Answer key

What is bank failure? Page 3

1 Obligations, 2 creditors, 3 insolvent, 4 assets, 5 liabilities, 6 run, 7 withdraw, 8 fragility, 9 spill over, 10 economy, 11 systemic, 12 collapse.

Check the facts. Page 5

1 True, 2 False, 3 True, 4 True

Synonyms. Page 6

carried out, passed, BIS Tier Capital Requirement, reported, have adequate funds, adverse expectations, explained, highlights, adopted, strengthen, limit, confirm, absorb, decline, failed

Review. Page 7

1 participating, resilience, 2 achieved, ratio, 3 assess, adverse, 4 expectations, hypothetical

Vocabulary Guessing Activity. Page 8

1 investigations, 2 failure, 3 errors, 4 collapse, 5 conclusion, 6 presented, 7 renew, 8 fatal, 9 increase, 10 provided, 11 requested, 12 denied, 13 indicates, 14 swap

Original text

Bank of Iceland Made Serious Mistakes

The Special Investigation Commission (SIC), responsible for carrying out (1) investigations in the case of bank (2) failure, reported that the Central Bank of Iceland had made a series of (3) errors before the banking (4) collapse in October 2008. The report reached the (5) conclusion that the bank had acted carelessly. Proposals on the bank’s actions were not (6) presented to the government, and the bank made a serious error when its employees forgot to (7) renew a loan channel at the Bank for International Settlements in Basel. When they realized the (8) fatal error, it was clear that the Central Bank would have to (9) increase its access to foreign currency. The loan channel would have (10) provided USD 500 million (EUR 366 million). The bank immediately (11) requested a renewal of the loan channel; however, this was (12) denied by the BIS. The report also (13) indicates that the bank had sent a formal request for a currency (14) swap agreement with the Bank of England but this request was also refused.

Sources:

http://www.euractiv.com

http://www.bancaditalia.it/stress_test2011;internal&action=_setlanguage.action?LANGUAGE=en