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CrossCurrents - Ernst & Young - United States

CrossCurrents: the magazine for financial services executives

Is government intervention good for banking?

Innovation is the lifeblood of financial services. Yet some question whether the government’s growing involvement hinders the industry’s creativity. The new issue of CrossCurrents looks at government participation in the recent economic crisis. And we report on how companies in asset management, banking and insurance navigate the changing market landscape.

Download the full CrossCurrents volume 10, issue 2 (pdf, 3.9mb)  
 

Inside CrossCurrents

  • Achieving remarkable returns: the business case for treasury
Treasury operations are an afterthought for many alternative investment firms. In today’s global financial climate, however, cash flow, liquidity and counterparty risk are top priorities. A competent treasury professional can bring greater discipline to working capital as well as to asset/liability management or overnight investing. Minor adjustments can often result in enormous savings. Just as hedge fund, private equity or other alternative investment managers know how to extract wealth from capital markets, treasury executives know how to make the most of cash and collateral operations.

Download the article: "Achieving remarkable returns: the business case for treasury (pdf, 302kb) "

  • Improving the odds: making mortgage workouts work
Many lenders and servicers still rely on old methods of dealing with mounting loan volume, despite the flurry of new programs for loan workouts and modifications. Protocols should be established to evaluate the financial circumstances and life events affecting borrowers approaching, but not yet in, default. Solutions that will identify steps to mitigate a potential calamity (e.g., foreclosure) should be in place long before it happens. Lenders and servicers need, and regulators are clamoring for, a system flexible enough to deploy program changes rapidly and help maintain adherence to regulatory guidelines.   

Download the article: "Improving the odds: making mortgage workouts work (pdf, 151.4kb) "

  • Global sanctions: disrupting the flow of dirty money

US regulators are increasing their examinations and enforcement efforts against illicit financial activity. The Office of Foreign Assets Control (OFAC) administers and enforces US sanctions programs. Implementation of a global sanctions program remains complex amid inconsistent standards. And published penalties are only a fraction of the cost to institutions. While under regulatory criticism, firms often need to undertake historical transaction reviews to size the extent of the issue. There is usually a need for increased spending on people and technology, and all of this takes place not only under the watchful eyes of the regulators and the public. The article presents 12 practices to mitigate risk of noncompliance.

Download the article: "Global sanctions: disrupting the flow of dirty money (pdf, 191.4kb) "

  • Lifetime strategies: winning the estate-planning market
The estate-planning market will be very challenging for life insurance agents and estate planners for the next few years. Now is the time for companies to help agents expand their sales process and their relationships with existing clients. Agents who just sell liquidity needs have little ability to influence the planning parameters or to establish insurance as a legitimate alternative to, or at least an equal partner with, tax-oriented wealth-transfer planning. The nimble agent can detect buying signals from prospects for whom life insurance is actually the most welcome path to their planning objectives.

Download the article: "Lifetime strategies: winning the estate-planning market (pdf, 107.7kb) "

  • A way forward: insurance Mergers and Acquisitions (M&A)
The current landscape has brought change to the way due diligence is performed in the insurance industry. Factors that were given less attention in past transaction analyses are now an integral part of the due diligence process. Pre-acquisition analysis should take into account any liquidity needs due to potential funding and collateral requirements, ratings covenants and regulatory capital adequacy. Due diligence has typically focused on portfolio performance in the aggregate. In the current environment, due diligence has expanded to consider the underlying securities to identify potential impairments or securities at risk for impairment. 

Download the article: "A way forward: insurance Mergers and Acquisitions (M&A) (pdf, 197.9kb) "

  • Special report: government intervention in the US banking sector
The US government’s plan to move toxic assets off balance sheets calls to mind a similar program instituted 20 years ago.  In this special report, we look at the similarities and differences between the current situation and the savings and loan crisis of the 1980s. With certain products and practices in the crosshairs of regulatory scrutiny in the current turmoil, it would follow that there will be a focus on processes for originating new products. Government oversight will change the ways in which investment products are created, traded and regulated. The government and the private sector must work together to solve the challenge of how to facilitate proper oversight without stifling the innovation so important to future economic prosperity.

Download the article: "Special report: government intervention in the US banking sector (pdf, 840.8kb) "

  • The future of risk forecasting
With the benefit of hindsight, many questions arise about the deficiencies of risk measurement and risk forecasting during the financial crisis. Stress tests and scenario analyses were supposed to prepare banks to weather crises. But coming up with the “right answer” in terms of a risk forecast is only half the battle. Now, risk management must be viewed as an integral part of decision-making throughout an organization. Without an ability to measure and manage different kinds of risk consistently in an integrated framework, a bank cannot hope to have an accurate picture of its risk profile.

Download the article: "The future of risk forecasting (pdf, 921.7kb) "

  • History need not repeat itself: lessons from insurance liability losses
The financial crisis is poised to have significant financial impact on Directors and Officers Liability (D&O) and Error and Omissions Liability (E&O) losses for US insurers. While property/casualty companies expect several more quarters of unsatisfactory results, most are still relatively well capitalized. Nonetheless, every company is concerned about how it is perceived by the rating agencies, regulators and investors. The question remains, can things get even worse?  Now is the time for companies to examine their current positions and future offerings. D&O and E&O insurers must take specific steps to keep ahead of a deteriorating situation.

Download the article: "History need not repeat itself: lessons from insurance liability losses (pdf, 116.1kb) "

  • The case for transformation in claims operations

Property and Casualty (P&C) carriers place an increased emphasis on innovation to differentiate themselves. While the current soft market has some companies shifting gears toward more top-line concerns, the carriers that assume a leading position will invest in claims to gain market share and protect their bottom line. Claims improvements can reduce business uncertainty through better risk management. Better data management leads to more effective decision-making. Due to the inherent complexity of claims processing and its critical role within an insurance carrier, any effort to transform the organization will require significant investment, commitment and discipline. 

Download the article: "The case for transformation in claims operations (pdf, 189.6kb) "

  • Obama’s tax proposals

President Barack Obama has an ambitious tax agenda. One of the main elements is a proposal to tax partnership carried interest at ordinary income rates. The administration also expects changes in international taxes to raise US$210 billion in revenue over the next 10 years. This would be accomplished in part by stepping up international tax enforcement. Companies on the sidelines should consider getting involved in the legislative process to make their voices heard. We present three key steps companies should take now to prepare.  

Download the article: "Obama’s tax proposals (pdf, 127.8kb) "

Request a call or meeting

Insurance Robin B. Sojcher
Banking & Capital MarketsWilliam Schlich 
Asset ManagementMichael D. Lee
Circulation QuestionsTom Lukowicz
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Our global professionals offer innovative thinking, proven methodologies and a wealth of industry experience to help you navigate the evolving business climate. We provide integrated assurance, tax, transaction and advisory services to asset management, banking, capital markets and insurance clients. You’ll also benefit from the depth of knowledge available only from a practice focused squarely on financial services (pdf, 1.3mb)  

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