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Issue 6 / February 2009 Cool Heads & Common Sense - Banking goes back to Basics
by Peter Farley,
MD EMEA Financial Insights
PFarley@financial-insights.com
Cool Heads & Common Sense
to Prevail as Banking Goes
2009 is going to be another
Back to Basics in 2009
extremely difficult year for financial
services in general and banking in
particular as it slowly picks up the
A Look at Some Likely Top Agenda Items in Banking
pieces shattered by the events of
recent months.
Everything changed on
It is almost certain that the ensuing months The key will be maximising returns on the Risk Management Part of this could be because of a Innovation?
September 15, 2008. The day
will see many more demands for additional business already in hand. In this regard (perceived) more deeply-embedded risk
capital across the banking sector, as well business return measures will shift markedly
The second factor is more sophisticated
culture driven by a far more conservative
One has to also hope that Innovation does
the authorities deemed that
as further casualties through mergers and from returns (or profitability) driven by
risk management. This covers the full
approach towards risk demanded by
not become another casualty of the “credit
Lehman Bros was not too big
closures as the industry continues to products to those measured by customer
spectrum from enterprise risk, through
actuaries. There are now many risk
crunch.” Many financial institutions have
to fail delivered a seismic blow
consolidate. activity. This will only be realised by a
operational, counterparty, credit, IT, liquidity
managers in banking looking to understand
delivered meaningful initiatives as a result of
combination of technology and people
and in its widest context – reputational risk.
whether lessons can be learned from
a commitment to embracing non-traditional
to the world’s banking industry
Several key themes are already emerging.
skills. At the heart of these initiatives will
And it is not just acknowledgement of those
developing a risk-led business model
approaches to new business models and
that will continue to cause
The overall outlook for banking this year is
be a bank’s ability to prove to customers
risks and the ability to measure them that is
as opposed to the profit-motivated
business practises. Most leading
“Back to Basics.” It is going to be a time
repercussions for months and
that it is determined to win back that vital
being prioritised, but the visibility of that
business plans.
organisations still see a commitment to
when financial institutions can no longer rely
commodity lost in the market turbulence
intelligence. Everyone is now accountable. innovation as an integral part of future
years after the event.
on profits from investment banking and
of the last year or two – Trust.
The second centres on attempts to change strategies. Perhaps, with innovation might
capital markets. But it is also a time when
There has been considerable discussion
internal business attitudes and cultures also emerge greater transparency and drive
It is not just what has
competition will increase and margins will In fact, the evaporation of trust has probably
as to whether recent events will lower bank
towards risk. Building an enterprise-wide for efficiency that will also sit comfortably

happened, but the speed at
be squeezed in traditional retail and been the single biggest factor behind the
appetite for risk. In the short-term and in
awareness of individual and collective with the business intelligence, risk
corporate banking activities. disappearance of lending between financial
some institutions the answer is probably
responsibility for risk will be essential management and other analytic projects
which it has occurred that institutions themselves and consequently
yes. However, the industry as a whole lives
for any business that has ambitions to

that are evolving to place the business on
took the regulators, politicians,
or dies on its ability to take risk and, in the
Efficiency
their customers. There will need to be a succeed in the new era that will emerge an even stronger footing in the future.
long-term, a return to more normal levels
investors, commentators and
much clearer understanding of the services from this turmoil.
Clearly efficiency will therefore need to be that retail and business customers expect
of risk will be essential. But those risks will To sum up, the rest of 2009 is going to be
bank customers completely
at the top of the agenda. Many financial and need from a bank. At the heart of these
need to be more thoroughly assessed and, Along with better risk management another extremely difficult year for financial
by surprise.
services groups are already looking at initiatives will be far more sophisticated
more importantly, much better priced. practices, it is inevitable that banks will services in general and banking in particular
be subject to far greater regulatory and
operating structures and the growing list customer management systems that can
as it slowly picks up the pieces shattered by
Investment in tools to assist in this area is
compliance oversight. Politicians and the events of recent months. It will take cool
Financial Insights outline
of redundancies demonstrates headcounts pro-actively use the data and knowledge a expected. There is also the impression that
regulators have to be seen to be doing heads, calm nerves, but also a degree of
their views on where the
geared towards expected growth are now bank already possesses about a customer. many financial institutions that already
something in the aftermath of what has
a luxury for many banks. The state of bank But it will also need frontline people who
confidence to see it through.
possess these capabilities have not put
practical focus needs to be
been widely-portrayed as the near collapse
balance sheets also means many are can both communicate and articulate those them to the best use. Certainly the reliance
of the banking industry. There is already
There will be new business opportunities
for successful banks of the
actively spurning even potentially profitable capabilities to customers, while at the same on “official” credit ratings has proved a
talk of the appointment of a global
and banks have to decide which will suit
future, highlighting in particular
lending opportunities as stricter risk time rebuilding trust in those relationships. flawed strategy.
“super regulator”.
their business the best. Customers will be
considerations are implemented. king and there will be a noticeable return to
the drive for efficiency, risk

Many financial organisations are, however,
“relationship management” with those
management and innovation.
undertaking a comprehensive review of risk
organisations that are able to demonstrate
in all its guises. There are two interesting
best “we are in this together” more likely to
developments in this regard. One, perhaps
win back the trust that builds longer-term
not surprisingly, is learning lessons from the
success and profitability. Technology is only
insurance industry that (AIG aside) has fared
going to be one component (albeit a critical
rather better than its banking counterparts.
one) of this rehabilitation. New investment
must be carefully weighed, but nevertheless
undertaken.
20 / Perspectives on the future Perspectives on the future / 21
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