Confidence in Maltese banks in times of crises

Abstract

The financial industry for many years acquired confidence from investors because of the returns it produced. However, after the recent financial turmoil, both on a local and international scenario, the situation has altered and investors are now more cautious with regards to their portfolio of investment. Indeed, the recent Global financial crisis and the Euro-Zone Sovereign Debt Crises, which shocked the investors, led to a significant reappraisal of risk. The degree of risk aversion is still considerably high and banks are increasingly advising investors to diversify their investments in a balanced portfolio with the goal of generating returns by investing in different maturities, risks and liquidity. Financial authorities are adopting measurement practices such as stress testing that measure the entity's effectiveness under undesirable and extreme conditions. Moreover, the introduction of Basel III introduced new capital and liquidity standards with the aim of strengthening financial institutions to enable them withstand shocks. Banks are more aware of identifying and abiding to certain requirements, such as laws, regulations and policies, where the majority are increasingly giving importance to the compliance department because of more stringent surveillance from supervisory authorities. The effects of the crisis may have different shades in different countries. It is therefore essential to identify the extent to which confidence in Maltese Banks was affected and also its strengths and weaknesses in comparison to other countries.