In the face of a similar threat to global economy today, as highlighted by the increasing risk of a looming US recession in the next 12 months, expectations of a unified and powerful international policy response remain low, amid all the bickering over trade issues and growing nationalism. Such developments have further elevated the risks to global economy, particularly in the backdrop of rising geo-political tensions. Central Bank of Kuwait - Public ‫ عام‬- ‫بنك الكويت المركزي‬  -5-  ii. Technology The second challenge we need to consider is the impact of technology on the banking industry. The latest digital technologies are transforming the economic landscape and are disrupting many traditional industries along the way. Banking is no exception, where financial technology is fast-evolving and being adopted at a breathtaking pace. Cutting edge technologies such as digital payments, mobile banking, data analytics, artificial intelligence, and blockchain are changing the way banks operate and interact with customers. FinTech firms are beginning to eliminate the role of many traditional intermediaries in the financial services industry. According to McKinsey, five major banking business segments are particularly at risk: consumer finance; mortgages; SMEs; payments; and wealth management. McKinsey estimates that this could put up to 40% of bank revenues at risk by 2025.6 Part of the reason is that FinTech firms can provide access to financial services in a more efficient and cost-effective manner. For example, some FinTech lenders have up to a 400-basis-point cost advantage over banks because they have no physical distribution costs.

These new and less experienced players concentrated in particular on shares that are quoted on the technology oriented Nasdaq exchange, which greatly influenced the pricing of similar shares around the world. While more professional and institutional investors accounted for 90 per cent of trading on the New York exchange, during the stock market boom around half of Nasdaq’s turnover came from private individuals. Studies also indicate that companies, analysts and banks had incentives to use somewhat questionable means of attracting inexperienced investors to buy shares in new enterprises. Lacking an adequate cash flow, many new technology companies were dependent on raising money from new share issues to pay their employees and procure equipment. That in turn called for a high share valuation. This gave managements an inducement to “doctor” reports and statements about their company’s future performance. The disclosures about WorldCom and Enron clearly show how an environment developed in which managements also stood to gain from stretching the accounting regulations in order to meet market expectations. It also looks as though the same environment left its mark on the large corporations’ auditors, who likewise needed to modify the extent and direction of their services in order to generate income and profits and survive in the new economy. In certain respects it amounted to breaking the law. In other instances it was the law that was not sufficiently clear or extensive. Analysts and investment banks that earned money by arranging share issues evidently lacked an incentive to make a critical appraisal of corporate reports and statements.