Global Regulatory Network

2017 Global Regulatory Outlook

Industry imperatives: How can banks thrive in the new regulatory environment?

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During 2017, banks will have to meet four imperatives: managing tighter capital and liquidity requirements, making resolvability part of business as usual, keeping conduct risk under control, and embedding good governance.

These imperatives have not changed. What has are the demands of supervisors, the economic and political environment and the application of technology to finance (FinTech). These have all lent a new urgency to investor demands that banks have a sustainable business model, one that will consistently generate a return on equity in excess of the cost of capital.

Supervisors are demanding that banks exhibit real progress against the four imperatives. In particular, they are requiring banks to improve their data, analytics and modeling capabilities. Each supervisor is also spelling out how its jurisdiction will adapt global standards to local norms. The result is not one standard, but many. This increases complexity and cost.

The economic environment compounds these effects. Persistent low rates weaken banks’ earnings. In addition, the prospective change in US economic policy, lower growth in China, bank note reform in India, ongoing stagnation in Japan, elections in Germany and France, and the UK’s impending exit from the European Union (EU) all create uncertainties.

Technology is creating new possibilities for banks to reduce costs, manage risk, improve compliance, increase customer satisfaction and drive revenues. But technology is also making it easier for criminals and terrorists to attack banks, as well as for new entrants to compete with banks.

To thrive in 2017 and beyond, banks will have to attract capital from investors. Investors, in turn, are likely to increase their scrutiny of banks, as resolution reform exposes them to the risk that they will be bailed in rather than bailed out if the bank fails.

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