Seven years out from the 2008 financial crisis, one thing is clear: the cost reduction and simplification programs adopted by investment banks immediately following the crisis are no longer sufficient. Growing regulatory pressure and new macroeconomic developments call for structural change in the industry’s business and operating models.
Rules of engagement
The proliferation of rules in recent years shows no signs of slowing. In fact, if anything, regulatory authorities are ramping up with new measures aimed at strengthening financial market stability and improving visibility across businesses and risks within organizations. Stepping back, we see seven main pillars of structural reform playing out across jurisdictions:
- Scrutiny from domestic regulations
- Governance of legal entities
- Stricter stress testing
- Capital and liquidity adequacy
- Recovery and resolution planning
- Separation or cessation of activities
- Geography-focused finance
What’s your move?
Smart investment banks are responding by synchronizing their regulatory and strategic business planning, and identifying inter-regional synergies that they can leverage to their advantage. As you evaluate your business mix, keep in mind these five core considerations:
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- Business activities. Concentrating certain activities in a single jurisdiction can be an effective way to streamline activities and reduce costs.
- Geography. Tailoring propositions to geographic markets can help you get the most from your scarce capital.
- Product mix. Focusing your efforts on a targeted set of offerings can make capital allocation and divestment decisions easier.
- Client mix. Identifying the cost of serving different kinds of customers can help you understand which market segments to pursue and which ones to exit.
- Financial optimization. Establishing clear goals with respect to capital, liquidity, funding and taxation can help guide your decisions in other areas and ensure you hit your financial targets.
A play for consolidation
The current climate generally seems to be driving investment banks toward consolidation—although that looks a bit different for every organization. There is no one-size-fits-all solution for restructuring, but banks can get a head start by thinking long-term, aiming for market-driven specialization, focusing on compliance and efficiency, and demonstrating value to stakeholders. When you’re not exactly sure where you’re going, it’s always wise to bring a map.
To learn more, visit: Global Structural Reform: Establishing a New-Era Response to Business Restructuring