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CFO report: the new era of banking regulation - EY - Banking & Capital Markets - EY - Global

CFO report: the new era of banking regulation

Less balance sheet-intensive business

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“Banking will have to become more of an agency business.”Todd Gibbons, Chief Financial Officer, BNY Mellon

Concern over capital, leverage and liquidity requirements continues to drive how banks address their business models and growth priorities.

For example, elements of Basel III’s framework, such as its new deductions to capital, have the potential to dramatically impact banks’ risk-weighted assets, making it difficult for banks to easily build buffers through retained earnings.

As a result, banks may lessen their exposure to balance sheet-intensive activities by assuming an agency role for investors without the same regulatory capital issues, such as asset managers.

Banks with an established presence in balance sheet-light businesses, such as wealth management or treasury services, may be more favorably positioned as a result of Basel III’s implications for how banks calculate capital and risk-weighted assets.

Our insight

While the changing financial portrait depicts many risks for banks, it also presents opportunities.

Banks “need to identify and evaluate their regulatory and business needs — including their operating- and capital-cost drivers — to determine the growth opportunities in their business, markets, and product lines,” said Robert Melnyk, Lead Partner, FSO Advisory Performance Improvement EMEIA, Ernst & Young GmbH.

John Weisel, FSO Global Advisory Leader, Ernst & Young LLP, agreed.

“Banks that are in a position to mobilize quickly and effect change in areas such as technology, operations, and reporting will be most successful in responding to a shifting regulatory landscape.”

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