2015 - The Year of the Bank Regulator?

Peter Lee, Editorial Director, of Euromoney has put out an article entitled Regulators Still Calling the Shots and it provides a good summary of the expectations for a heavy handed year in 2015 by bank supervisors.   "Regulation now utterly dominated the banking industry and will have an even bigger impact in 2015, not just on bank capital and returns but the entire legal structure of the industry", it opens.  My few meetings with Peter has dedicated his keen interest and sharp mind in this article to get to the bottom of financial insitutions and thier set of challenges, from losses, capital raising and fines in this post crisis environment.

Here, Lee envisions the potential of a financial system with a diversity of business models from consumer lending, private banking, corporate banking and trading/sales of risk management products. However, such visions will remain a distant dream as the industry grapples with going concern capital buffers, TLAC requirements, leverage ratios and the like to a more fundamental set of issues - including business models and structure.

One such fundamental decision for banks is around the provision of digital products and services to thier clients, an under-invested area according to McKinsey.  Another area is the emergence of alternative sources of market based finance (a code word for shadow banking at the Bank), 

A sister article in the magazine penned by Sid Verma points to the confusing and inconsistent rules around ring fencing and related large scale implementation costs.  HSBC alone is quoted as estimating some $3.2 billion of expenses to erect a firewall between its utility-like consumer bank and its investment bank under Vicker's proposals.  Lastly, the regulators still seek de-leveraging of TBTF institutions as the economies of scale argument paves way for simplier banks and improved risk governance.   All of this means a year of challenge and survival for bank board members providing monitoring, oversight, and advice to the C-suite.

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