The global banking industry weathered turbulent times in 2007 and early 2008. After rising interest rates and a decline in U.S. housing prices drove increased defaults among subprime borrowers, investors rapidly lost their appetite for securities based on subprime mortgages and soon for other securitized assets as well.
Given the integration of capital markets, the impacts quickly ricocheted around the world, affecting banks, securities firms, and hedge funds in the United States, Europe, and Asia.
The credit crisis has created an unsteady environment for the industry, with each week seeming to bring new developments. The continuing fallout has led to more worries about the outlook for the U.S. and the world economies. Here are the key challenges we see
for the global banking industry:
Back from the brink: Emerging lessons from the subprime crisis.
The credit crisis spurred by problems in the U.S. subprime mortgage market has placed enormous strains on the banking industry. While the full impacts are still emerging, it has emphasized the need to upgrade risk management, especially for credit and liquidity risk. Banks will need to employ more sophisticated tools and approaches to assess these risks, such as stress testing, especially for today’s complex instruments. A number of fundamental issues will be getting a lot of attention loan underwriting standards, asset valuation methodologies, the adequacy of loan loss reserves and capital, internal controls, the management of off-balance sheet risks, and risk disclosures. Banks need to prepare for more intense regulatory oversight of their management of financial risk, operational risk, and compliance. At the same time, the appropriate roles of the regulators and the rating agencies are also under scrutiny.
Building the next-generation branch.
The role of the branch is changing from a place to conduct transactions to a center for advice and sales. The most successful banks will be those that fundamentally rethink their branch strategies. Among the elements to consider in developing a next generation branch strategy are redesigning the physical space, recruiting staff with advisory and sales skills, migrating payments to lower cost channels, designing an efficient branch rollout process, and creating branches that specialize in specific services.
Developing your talent pipeline.
Ensuring there is consistent, quality leadership in executive ranks is clearly essential to banks’ success. Nevertheless, many banks do not have solid succession plans in place. Banks can address this challenge by taking short term actions to ensure a smooth succession, while at the same time establishing a talent pipeline that identifies and nurtures talented executives over the long run.
Lightening the compliance burden: Integrated compliance and risk management. Spurred in part by September 11th, the dot com bust, and financial reporting scandals, over the last several years compliance requirements have increased substantially in number and scope, imposing a greater burden on financial institutions. All too often, banks have responded to new requirements in a piecemeal fashion, leading to duplicative processes, data gathering, and testing. Taking an integrated, enterprise wide approach to compliance requirements can boost efficiency, while at the same time improving risk management.
The sustainable bank: Where eco-friendly meets business friendly.
Many banks have announced environmental initiatives, but few have adopted a strategic pproach. By focusing on key big picture issues, banks can increase efficiency by making their institutions fully sustainable, while also capitalizing on the substantial business opportunities offered by the “green” consciousness sweeping society.
Payments consolidation: Time to act.
Although vital for most banks, payments is increasingly a commodity business subject to price and margin pressures. But older, siloed payments organizations make it difficult to achieve the necessary operating efficiency. As banks re think their infrastructures, they should consider organizational changes that transcend traditional silos, creating innovative “hub” architectures that simplify payments systems to reduce costs and increase flexibility.
SOA: Moving beyond IT.
At a time when banks often struggle to keep aging, disparate systems in step with business needs, service oriented architectures (SOA) are a way to integrate and streamline the IT landscape. To get the most out of SOA, however, banks need to view it as more than simply an IT strategy. By shifting to an enterprise wide, business oriented approach, they can employ the modular SOA approach across the enterprise to drive broad benefits ranging from reduced costs to shorter time to market and increased agility.
Contents
Executive summary
Back from the brink: Emerging lessons from the subprime crisis
Building the next generation branch
Developing your talent pipeline
Lightening the compliance burden: Integrated compliance and risk management
The sustainable bank: Where eco friendly meets business friendly
Payments consolidation: Time to act
SOA: Moving beyond IT
