Bankers Worry B&C Woes Could Spill Over Beyond Housing Sector

Financial services industry executives cite the cost, risk and burden of regulatory compliance as their top concern these days, according to a survey conducted by PricewaterhouseCoopers during the company's annual forum.

But the executives gathering for PwC's recent financial services forum also expressed concern about fallout from the subprime mortgage meltdown.

While only 10% said the decline in the housing market would be the biggest challenge facing their organization over the next two to three years, 30% said they were concerned or extremely concerned about adverse impacts that the turmoil in the subprime mortgage market could have on their organization, according to PwC.

The plurality, or 49%, said they were only "somewhat" concerned about the subprime mortgage issue. Another 21% said they were completely unconcerned by it.

Other leading challenges cited by the industry over the next two to three years included the "decline of U.S. competitiveness" and "competition for talent."

PwC noted that concern about declining U.S. economic competitiveness has increased significantly since last year's forum.

"Financial services firms operate in an increasingly complex and heavily regulated environment, on in which the bar is high, by design, to ensure the highest level of investor protections. The rigor of compliance and controls has helped make our capital markets system one of the strongest in the world," said Timothy Ryan, chairman of the U.S. financial services practice at PwC, in a news release.

He said there is concern that the U.S. may be lowing its dominance in the financial markets because of reasons that go beyond the country's regulatory environment.

"It faces new competition that never existed in the global capital markets system. We must work to identify the true root causes of the perceived decline of U.S. competitiveness and propose solutions that do not undermine confidence in the capital markets," Mr. Ryan said.

The executives also expressed concern about a number of "fair valuation" accounting changes being implemented by the Financial Accounting Standards Boards. One of those changes, which allows mortgage companies to account for servicing rights and hedging instruments by marking them to fair value, has been embraced by many large mortgage companies.

When asked about which FASB initiatives will have the greatest impact on their business or finance team, 34% said that the fair value measure (FAS 157) and 28% said the fair value option rule (FAS 159).

At A Glance: Financial Executives React to The Subprime Mortgage Problems

Concerned/Extremely Concerned 30%

Somewhat Concerned 49%

Not Concerned 21%

Source: PriceWaterhouseCoopers

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