What are the banks doing?
- The banks are responding by re-structuring their legal entities to introduce holding companies, operating subsidiaries, revising their internal governance and control structures, creating regional hubs or localizing their operations to decentralize services previously performed by the group.
- Many banks are focusing on core activities, either retreating from entire international markets or exiting certain business lines.
- Banks are assessing their capital and liquidity positions against Basel 3 and CRR requirements, and adjusting their balance sheet in terms of capital, risk weighted assets, capital and leverage ratios and funding sources.
- The banks are targeting expense reductions to offset regulatory reform costs. Their savings strategies focus on deriving back office efficiencies and automation, rationalized branches and service channels, product simplification, lowering staffing costs and outsourcing or off-shoring.
What is the impact on customers?
- Although aimed at the greater public good, regulatory reforms could exert noticeable macro-economic impacts on the overall economy, including reduced business investment or investor optimism, which ultimately trickles down to impact the daily lives of consumers.
- At the micro-economic level, retail banking customers will face higher prices for banking products and services and wholesale bank clients will feel the affect of less competition, lower bank appetite for lending and pricing based on more stringent risk approaches.
- Such impacts suggest that European regulatory change may have passed the ‘tipping point’ to a situation where the costs of new rules exceed the benefits.
Review section two (PDF 2.87 MB) of the report for an overview of the primary regulatory impacts on the banks, the banks’ response, and a discussion of the expected impacts on the economy and banking clients.