Universal banks need to find ways to mitigate the costs of regulatory developments, particularly for non-ring-fenced operations, while identifying opportunities to restore profitability by increasing existing revenue streams or generating new ones.
The years since the global financial crisis have seen an emergence of a complex web of new bank solvency regulations. With implementation scheduled for 2019, the ICB’s proposals may seem way off, however, with the changes it envisages so profound and pervasive, banks should start considering the impacts as a matter of urgency. Those that hit the ground running now will have a head start in the future race for differentiation in an even more constrained capital environment.
The proposal from the Independent Commission on Banking (ICB) on loss absorbency will intensify already strong regulatory pressures on banks’ capital, liquidity, funding and leverage. Also, the introduction of ring-fencing will make it even more difficult to manage these tasks by requiring universal banks to address them separately for the ring-fenced and non-ring-fenced operations. The overall impact will be to raise the cost of doing business even more, while simultaneously restricting banks’ opportunities to pursue revenue growth.