Global management consulting firm and leading advisor on business strategy, Boston Consulting Group (BCG) recently released a new report – Global Risk 2017: Staying the course in banking, which reviews the state of global banking and offers an agenda for its future.
Boston Consulting Group (BCG), a globally leading management consulting firm, recently published a new report entitled, Global Risk 2017: Staying the course in banking. According to the new BCG report, the banking industry remains on the road towards recovery that it has been throughout recent years. BCG’s seventh annual study of the industry’s health showed that, in 2015, the global economic profit (EP) of banks grew very slightly for the fifth year in a row. The report offers an assessment of the economic profit of more than 300 retail, commercial, and investment banks over 2015.
Within the world of banking, regulations are intensifying. As BCG forecasted in 2016, regulatory changes are being felt worldwide, producing a considerable impact on the strategic and operational planning efforts of banks. Coping with regulations must remain a priority this year and in the future, and the increasing costs of doing so are expected to put added pressure on banks to create more effective and efficient processes. Leaders in the industry will seize the opportunity to incorporate technical innovation, even while optimising the allocation of scarce financial resources.
For 2017 and onwards, BCG predicts an increase in the economic profitability of global banking, and describes the ‘constant evolution’ now facing the regulatory landscape. To assess the current state of the regulatory landscape, BCG organised the global regulation spectrum into three main themes: financial stability, prudent operations, and resolution. Financial stability is described as the most developed area of reform, although evolution is still on going.
Since the financial crisis of 2007-08, strict regulatory enforcement has brought about cumulative financial penalties that total roughly $321 billion (through the end of 2016). While US regulators have assessed most of the fines, their counterparts in Europe and Asia still need to step up the pace. Managing these costs poses a major burden for banks because it requires the creation of a strong non-financial-risk framework to avoid errors of the past. Changing values and ethical standards are already reframing banks’ business judgments and individual executives’ decision making. Today, the question has evolved from one of lawfulness, to one of legitimacy.
The most important theme that BCG highlighted in the evolution of regulatory reform was resolution, which remains the least developed and most pressing of the three outlined regulatory clusters. The industry still lacks consensus on which preparatory, structural measures might be needed. However, some potentially significant contributions to bank resolution have been emerging from measures that were already implemented by some banks, including both quantitative and structural adjustments and changes. Ultimately, managing regulations will remain high on the agendas of banks’ risk and steering teams, and defining an efficient mode of interaction between banks and regulators will be a critical task.
To read or download the complete BCG Perspectives report ‘Global Risk 2017: Staying the course in banking’, click here.