There are considerable advantages in maintaining an independent currency and free movement of private capital, but it does mean that stability relies to an important extent on maintaining the confidence of market participants in the currency and the financial system.
Two of the more common deficiencies we see are the failure to obtain independent confirmation of a borrower’s income and failure to test a borrower’s capacity to keep making repayments if, over the course of the loan, interest rates were to increase. As competition intensifies, the strength of banks’ risk management systems for commercial and consumer loans is likely also to be tested.