What to Expect From Banks After the Great Recession

by Inya Ivkovic, MA

Banks around the world have gone through probably the worst banking crisis in the past eight decades or so. Some have navigated their way through the crisis successfully, some not so much; the determining factors being business acumen, susceptibility to greed, and degree of regulation. But even the celebrated Canadian banks have reasons to be humble these days. The global economic crisis has had profound and indiscriminate consequences for all banks around the world in the form of beaten balance sheets and the loss of customer trust and loyalty, both of which will take time and considerable effort to repair.

There is plenty of talk on creating new regulatory and risk management landscapes; yet, there is precious little said about how banks’ business models should adapt to the changes coming their way. Without a doubt, radical transformations will impact all types of financial institutions worldwide. And, as the new world of global banking emerges, this is surely no time to stay on the sidelines.

So, how will banks’ business models look in the aftermath of the Great Recession? In the past decade, banks’ business structures have become exceedingly complex. But the trend now is to reduce the number of products and to simplify offerings by returning to more traditional and more conservative retail and commercial banking within a more conservative risk framework. But the return to basics should not be equated to the return of the old ways. Rather, bankers are likely to find themselves responding to their customers more agilely and creating partnerships with non-banking entities to deliver new competitive products and implement new risk-management strategies.

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Also, what about risk? Let’s take as a prime example Canadian banks. They have always been subject to more stringent regulations and sound internal risk management, which largely shielded them from the current economic downturn. But, even north of the border, the bar has been raised.

The global banking industry is going towards building effective risk-management frameworks, which are both compliance- and risk-oriented. We even see the trends towards merging the compliance and risk departments into one to act in unison, because past models of having separate structures often resulted in redundancies and higher costs of gathering and analyzing data, as well as compliance and risk monitoring. Aside from compliance and risk groups working closely together, there are tendencies for the finance function to get involved as well, particularly when engineering new products.

What about growth? Well, banks that have weathered the global economic crisis, like Canadian banks, with strong balance sheets and a consistent customer base, will have the money and inclination to growth through acquisitions. The field is littered with growth opportunities that are not available to weaker players, regardless of their size. We also expect that the U.S. banks that remained household names without seeing their names plastered over damning headlines will also likely become aggressive in the months to come. All they are waiting for probably is for this difficult year to run its course and for the bargaining prices to prevail after the survivors finally come to shore.

What to Expect From Banks After the Great Recession
by Inya Ivkovic, MA

Banks around the world have gone through probably the worst banking crisis in the past eight decades or so. Some have navigated their way through the crisis successfully, some not so much; the determining factors being business acumen, susceptibility to greed, and degree of regulation. But even the celebrated Canadian banks have reasons to be humble these days. The global economic crisis has had profound and indiscriminate consequences for all banks around the world in the form of beaten balance sheets and the loss of customer trust and loyalty, both of which will take time and considerable effort to repair.

There is plenty of talk on creating new regulatory and risk management landscapes; yet, there is precious little said about how banks’ business models should adapt to the changes coming their way. Without a doubt, radical transformations will impact all types of financial institutions worldwide. And, as the new world of global banking emerges, this is surely no time to stay on the sidelines.

So, how will banks’ business models look in the aftermath of the Great Recession? In the past decade, banks’ business structures have become exceedingly complex. But the trend now is to reduce the number of products and to simplify offerings by returning to more traditional and more conservative retail and commercial banking within a more conservative risk framework. But the return to basics should not be equated to the return of the old ways. Rather, bankers are likely to find themselves responding to their customers more agilely and creating partnerships with non-banking entities to deliver new competitive products and implement new risk-management strategies.

Also, what about risk? Let’s take as a prime example Canadian banks. They have always been subject to more stringent regulations and sound internal risk management, which largely shielded them from the current economic downturn. But, even north of the border, the bar has been raised.

The global banking industry is going towards building effective risk-management frameworks, which are both compliance- and risk-oriented. We even see the trends towards merging the compliance and risk departments into one to act in unison, because past models of having separate structures often resulted in redundancies and higher costs of gathering and analyzing data, as well as compliance and risk monitoring. Aside from compliance and risk groups working closely together, there are tendencies for the finance function to get involved as well, particularly when engineering new products.

What about growth? Well, banks that have weathered the global economic crisis, like Canadian banks, with strong balance sheets and a consistent customer base, will have the money and inclination to growth through acquisitions. The field is littered with growth opportunities that are not available to weaker players, regardless of their size. We also expect that the U.S. banks that remained household names without seeing their names plastered over damning headlines will also likely become aggressive in the months to come. All they are waiting for probably is for this difficult year to run its course and for the bargaining prices to prevail after the survivors finally come to shore.