‘Global Banking Will Look Fundamentally Different in 12 Months’

Michelle Remo, “Big 4″ observer
December 28, 2011 /

The upcoming year “will likely be remembered as a watershed moment for global banking, with banks pressured to completely overhaul their business models and structures,” according to KPMG’s banking outlook.

Historic rates of return on equity have been affected by current market realities. Banks are already making radical adjustments in a bid to create value for their shareholders and meet regulatory challenges. Consequently, simpler banking models and further moves by banks to move parts of the business to Asia are likely.

“The regulatory debate and policy developments of the past three years have just been a warm up. 2012 is the year of action and a long and difficult road of implementation lies ahead. We are witnessing the next wave of regulatory reform and rapid implementation that will be required from senior management at banks,” said Giles Williams, head of KPMG’s Financial Services Regulatory Center of Excellence.

“The key challenges facing banks can be summed up in two words—liquidity and capital—and 2012 will likely be dominated by refinancing. As banks have been tasked with additional capital requirements, there will likely be continued focus on higher retention of earnings (rather than paying out as bonuses or dividends), cost reduction and reducing on- and off-balance sheet exposures.”

In addition, Williams commented, “In practice, I expect recovery and resolution plans (RRPs) to be high on bankers’ agendas during the first half of 2012. Limited progress has been made on harmonized resolution regimes for major cross-border groups to date; however, a critical task for Q1 and Q2 of 2012 will likely be working through RRPs in the context of the UK Treasury’s recommendations on the Independent Commission on Banking (ICB) report.

“The global systematically important financial institutions (G-SIFI) debate is expected to be nudged forward early in the new year with the Financial Stability Board due to make further announcements on both capital and liquidity in January.”

KPMG’s Evolving Banking Regulation report contrasts regulatory developments in Europe, the US and Asia Pacific. Despite the intention of the G20 to have regulatory convergence, the intensity and urgency of policy initiatives coming out of various jurisdictions is directly correlated to local market conditions. Consequently, regulatory reform is being pushed harder in Europe and the US than in Asia.


According to the report, banks face significant increases in costs to meet regulatory reforms while earnings are simultaneously being hit hard.

While the European sovereign debt problem has diverted recent attention away from the broader regulatory agenda, it is expected to be firmly back on the agenda in 2012.

The proposed separation of retail and investment banking as raised by the ICB in the UK is now being examined across Europe. The Financial Transaction Tax is another debate that is expected to continue throughout Europe and the Foreign Account Tax Compliance Act (FATCA) continues to challenge operating models.

At the same time, the capital and liquidity issues being driven by the regulator and through the Capital Requirements Directive IV (CRD IV) framework will likely continue to be top of mind.

Governance and remuneration, specifically the role of the board, senior management and internal framework, are expected to move up the regulatory agenda over the next 12 months.


According to the report, the debate in the US has been focused on the proper role of regulation, with some questioning whether current regulatory rule-making is hampering the economic recovery and potentially putting US institutions on an uneven playing field with global competitors.

By the end of 2012, industry participants should have a better understanding of how many aspects of the Dodd-Frank Act will be implemented and the true impact on their business model and profitability.

Ultimately, 2012 will be another year of significant change and uncertainty for the US financial services industry as firms continue to make the transition to a new regulatory environment with new rules and regulations.


According to the report, despite the fact that banks in the Asia Pacific region generally fared well during the crisis, Basel III implementation is still moving forward.

Analysis of capital requirements under Basel, and current requirements in some Asian jurisdictions, suggests that some Asian regulators will be treating all their major banks as if they are systemically important.

With all the focus on Basel III, according to the report, it is easy to lose sight of the fact that there are numerous other issues facing banks in Asia notably how the macro-economic environment will develop.


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