Over the past five years, the financial services industry has witnessed dramatic shifts in the regulatory landscape. As a result of economic crises around the globe, financial institutions are subject to new and complex regulatory mandates. Here are some of the primary considerations for bank management.
Capital management is at the heart of most of these initiatives. Financial regulations have been evolving at an unprecedented pace across all segments of the industry as a result of these various initiatives:
- Stress testing requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act
- Comprehensive Capital Analysis and Review (CCAR) exercises conducted by the Federal Reserve Board
- Implementation of Basel II and Basel III regulatory capital frameworks
Capital reform will ultimately create a paradigm shift for many banking organizations as they reevaluate business models, core product and service offerings, and revenue sources. The effort usually requires months to plan and years to fully implement, requiring real changes to business models, operations, and governance.
The global financial crisis of 2007–2008 highlighted the fact that even well-capitalized banks can fail. This finding prompted a new focus on bank liquidity, and resulted in both international and domestic efforts to introduce a new liquidity framework, including measures and disclosures
Comprehensive Capital Analysis and Review
The Federal Reserve published final CCAR rules in November of 2011. They apply to bank holding companies with average total consolidated assets of US$50 billion.
Difficult and costly, CCAR implementation requires extra costs in infrastructure, data and analytics, system connectivity solutions, and human capital. Banks subject to CCAR requirements must produce specific information beginning early January every year: projected annual income statement, balance sheet, and capital ratios; stress test scenarios, forecasts, comprehensive capital plan and asset data.
Data, Systems, and Infrastructure
The high cost of managing data is a constant concern for management, especially those in the financial services industry where a complex regulatory environment continues to puts pressure on operating margins.
Over the coming years financial institutions will continue to struggle with massive regulatory change and adapt to doing business in the post financial crisis environment.
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