The time scales for dealing with gaps vary and there is significant competition for resources
Most banks report that they have acted immediately on some aspects, while other remedial action could take 12 to 24 months or even longer to complete. The greatest impediments to swift action are data and systems and in some cases, cultural change. All banks are currently facing major pressures on particular types of resource. The current remediation activity has been given the highest priority, but banks are relying on few skilled resources.
Impediments
The most frequent impediment highlighted was data and systems. Banks have a number of legacy systems that make aggregation (or at least quick aggregation) of data difficult. Some of the new approaches will rely on the development of better systems and data and this will take time. Integration programs, where different banks or banks and investment banks have merged, will be drawing on the same resources.
Some banks highlighted the need for cultural change and a number said this would take time.
Some banks have accelerated cultural change by replacing key individuals across the organization. In some cases, banks said that mergers have provided the opportunity to achieve cultural change across the organization by taking the best controls of each, while closing down some of the most risk-taking businesses.
Will changes last?
In almost every area, the banks were confident that change could be achieved. The area that stood out as having the greatest impediments was remuneration. Again and again, firms said that they were revising the remuneration structure in order for it to be more risk-based. They also claimed to be exploring a longer horizon in terms of bonus payouts, but they were not confident that changes would be workable or would last in the face of pressure from the market.
In some other areas too, questions remain as to how long-lasting all the changes might be in the face of another boom. Several banks reported severe stress testing as now acceptable whereas, prior to the crisis, there had been much less receptiveness — in the severe stress tests being regarded as implausible.
Another challenge that several banks mentioned was the uncertainty over regulations. The regulatory environment is changing quickly in the light of the crisis, making planning the right infrastructure for the next 10 to 15 years significantly harder.
Four key themes
1. The focus is on governance and risk appetite
2. Gap analysis was driven by a top-down approach with significant board and senior management involvement
3. Banks lack agreement on degree of change needed in response to the credit crisis
4. The time scales for dealing with gaps vary and there is significant competition for resources.
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