In addition, competition will be fierce as these banks target the same ‘core’ depositors, clients and markets. Savers should benefit from increased interest rates, but the inevitable quid pro quo will be higher borrowing rates (a trend that is already starting), creating further conflicts and potentially damaging trust.
There is no doubt that remuneration policy in many banks has been a significant hindrance in restoring that trust. However, although there are good stories to tell about how remuneration has been better linked to ongoing performance, too few banks in the survey show a comprehensive approach in providing information that delivers that story.
By failing to clearly set out how much of current year remuneration is deferred, the conditions under which it will not be paid, clawbacks and performance metrics, we believe that some banks have missed an opportunity to proactively explain themselves before the inevitable media onslaught.
The short and medium-term future looks extremely difficult. For instance, these banks report reduced levels of impairment charges but other risks in bank loan books (for example, direct and indirect Eurozone exposures in certain countries) could quickly emerge and push those charges up again. Banks, therefore, should ensure that they have the right resources, processes and systems to weather what appears to be a never-ending storm of issues.
The real winners will be those that strike an appropriate balance between sometimes inconsistent and often conflicting internal priorities and survive the storm of challenges from the global economy.