Banking Newsletter
June 2011
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The BBA's annual conference on Wednesday was set against a backdrop of industry uncertainty; the focus of the day was regulation and key recurring themes were the role of banking in promoting economic growth, the potential for regulation to have unintended consequences, the importance of competition and a level playing field, and how the banks can go about rebuilding public trust.
Read Bill Michael’s speech on ‘The Future Shape of Banking-Unintended Consequences’
With ring-fencing now a near certainty, critical questions still remain around where the line around retail banking is drawn, and how banks will structure their operational and business models in the post-ICB world.
Centralising customer data is at the heart of regulatory compliance, and commercial advantage. Regulation is forcing banks to update and enhance their customer data – with the cost for each institution running to hundreds of millions of pounds. Yet tackled right, such mandatory data-related projects can be transformed into business opportunities.
UK banks face tenfold increase in regulatory reporting volumes under new European rules. It is essential banks identify common data and processes to ensure their Common Reporting (COREP) response interlinks with other projects in an effective and efficient fashion to control costs.
As the UK's Liquidity Regime ploughs ahead, industry participants struggle to keep pace. Having made the early running in the global regulatory response to liquidity management, three major issues are starting to emerge from the UK's regime.
The requirement for 'living wills' in banks is likely to lead many to contemplate restructuring their value chain, which inevitably brings tax risks and opportunities through the transfer pricing rules.
Credit Portfolio Management (CPM) units are wrestling to combat growing credit, liquidity and funding risks. Credit default expectations are on average five times higher than pre-crisis levels at present, with increased capital charges looming and the outlook for the global economy at a 21 month low. In this environment, banks' CPM units are broadening their remit and enhancing their arsenal of tools and metrics in order to meet the challenges ahead.
International Financial Reporting Standards (IFRS) Wave 2 will force a radical shake up of banks' balance sheets, bringing costs and complexity, but opportunities too. Wave 2 of the IFRS will institute a raft of accounting changes over the next few years, which together, will fundamentally rewrite banks' balance sheets, require major systems and processes changes, and will impact regulatory capital positions.
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