• Industry: Financial Services, Banking
  • Type: Business and industry issue, White paper
  • Date: 9/10/2012

Shifting realities – Why transformation is coming 

There may have been national banking crises in the past that were more severe. But given the unfathomably complex transactional relationships between banks all over the world, there was no doubt that the shocks to the financial system in 2008 would reverberate across the globe.

The crisis has left the banking sector facing a set of new challenges and pressures:

  • Increasing regulation and regulatory scrutiny: Authorities are determined to avoid a repeat scenario of the banking crisis, resulting in a whole slew of regulatory change with the aim of tightening up regulation and avoiding another ‘too big to fail’ situation.
  • Volatile economic environments: As the global economy enters its fourth year of reduced growth, if not downright recession in parts, banks will require a new approach if they hope to operate successfully in such a shaky economic environment.
  • Reduced customer/public trust: In the aftermath of the economic meltdown, banks are finding customers less trusting, less forgiving and with higher expectations about how banks do business.
  • IT environments unable to meet compliance requirements: As the impact of regulation sets in and competition starts to heat up to win back customers and increase internal efficiency, systems will need upgrading across the board.

Figure 1

How will these changes affect the universal banking operating model?

Given these unprecedented challenges, it is not surprising that the universal banking model is teetering on the brink of collapse. As outlined in our full report, the changes revolutionizing the banking sector will impact traditional banking operating models in a number of ways, and we believe this will lead to:

  • The end of universal banking: We believe that the era of centralization and single-platform strategies is drawing to an end. Increasingly, shared services entities will be decentralized, either by disbanding them altogether, or by restructuring.
  • The disintegration of the value chain: Banking regulators are keen to destroy the concept of banks ‘being too big to fail’. One way to achieve this is to divide ring-fenced banks into smaller components along product lines, spreading the risk between separate locally-resolvable entities.

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