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Global banks adapt to uncertain economics and regulations - Bank regulations force change to the business model - EY - Global

Global banks adapt to uncertain economics and regulations

Bank regulations force change to the business model

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"We thought we could rely on markets for rational answers." – Summit participant

Since 2009, policymakers, regulators and supervisors have worked toward improving the safety and soundness of the global financial system through a range of regulatory changes aimed primarily at large banks.

While it's clear regulation will shape the industry trends for the foreseeable future, key questions remain as to how regulation will evolve, leaving members of bank boards weighing how to react and what the ultimate impact on banks will be.

Regulatory focus on SIFIs raises a number of concerns

Directors at the summit discussed a number of concerns regarding the current regulatory focus on SIFIs and its potential outcomes and impact, including:

  • Policymakers and regulators lack a clear vision of the ideal banking model
  • Additional regulation of SIFIs may have unintended consequences
  • Fulfilling additional SIFI capital requirements may prove challenging
  • Regulators are unlikely to soften capital and liquidity requirements, even temporarily

The evolving shape of SIFI supervision

Supervisors have explicitly expressed their intentions to increase the intensity and depth of supervision and are in the process of shaping their approaches. Yet, three years after the financial crisis, the details of a new approach haven't been worked out in practice, leaving a number of lingering challenges such as variances in supervisory intervention and a significant talent challenge in meeting expanded objectives.

Leaders agree supervision should involve greater engagement with senior executives and non-executive directors. To do this, bank leaders need to engage policymakers in a broader debate about the impact of regulatory changes.

How can the level of engagement be improved?


Target the most important institutions


Be granted free access to the board


Have candid exchanges about concerns and perspectives


Develop a more complete picture of the organization


Offer valuable benchmarking across institutions


Be allowed to discuss the right issues at the right levels

Despite disagreement, banks must accept the new reality

Despite all the work devoted to regulatory reform, some directors remain skeptical that regulators and policymakers have got it right. If the industry is to be successful, it must engage policymakers in a dialogue to identify an approach that balances the need for safety with the broader need for a robust financial system that is free to take risk.

Banking leaders may need to better articulate what alternative approaches to regulatory reform would be more effective and why, rather than simply protest what some regard as "moderate changes." Regardless, banks need to accept the realities of a new regulatory paradigm that could require structural and business-model changes.

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