The approval of Basel III regulations resolves many key banking issues and provides some degree of certainty for the future of capital and liquidity requirements. However, increased fragmentation is expected as banks implement their own versions of reforms.
Tighter investor and supervisor scrutiny will require banks to review their strategies and business models to "do more with less" as well as meet investor demands for greater return on capital.
For banks that decide to stay and play, the current environment presents a window of opportunity, as long as they implement strong programs and strategies in five key areas:
- Good governance: Both supervisors and investors will look to banks to develop and implement a robust risk appetite framework. The key is to allocate responsibility for specific functions to senior executives and board members and hold those individuals accountable for meeting those responsibilities.
- Culture of compliance: Banks still need to repair the reputational damage caused by their past misconduct. Most have made major investments in recent years to strengthen compliance capabilities and develop more robust regulatory risk management. Banks need to continue exploring how technology can promote better compliance.
- Data management: Data is the bedrock for banking and needs to be in line with the Basel risk aggregation and reporting standards. Digital transformation presents an opportunity to improve data management — but a risk for those banks that do not.
- Data analytics: The ability to analyze across multiple dimensions is more important than ever. If banks are to monitor, model and manage risk and finance from business, product, legal and group perspectives to the standard that supervisors demand and investors expect, they will have to adopt advanced analytics and employ robotics.
- Better collaboration: No bank can do everything on its own, at least not with the speed or sophistication needed to keep pace with competitors in a rapidly changing environment. If a bank is to build, or even just defend, its business, it has to insource capabilities and outsource functions to external providers.