The COVID-19 pandemic is a profound health and humanitarian crisis that massively challenges the financial and operational resilience of the global Capital Markets industry. The outbreak has initiated a call to action for leaders worldwide to rapidly assess the fast-changing developments, and to mitigate the ensuing impact on their people, their customers and their organizations. We believe this unprecedented set of challenges should be addressed in three phases: Stabilization, Reconfiguration and Recovery.
Stabilization: What to do now
The global Capital Markets have continued to function well through the current period of significant market volatility, interest rate cuts and diverse global stimulus packages. The immediate priority now, however, is to prevent the public health crisis from becoming an enduring financial crisis.
The global Capital Markets industry is a highly interconnected—and sometimes fragile ecosystem. Working with regulators, governments and trade bodies, industry players must collectively identify points of dislocation and react accordingly to prevent economic contagion and dangerous “beggar thy neighbor” behavior. The industry should be providing funding and liquidity to ensure that the global, and specifically, credit markets continue to function. One might want to call this “achieving ecosystem resiliency”.
Each underlying segment of the global Capital Markets industry, from Investment Banks to Wealth Managers to Asset Managers, will have to play a critical role as a systemic stabilizer for their customers, their employees and their economies at large.
Reconfiguration: What to do next
As a second step, the industry will need to adapt to dramatically changed priorities and will have to reallocate resources accordingly. While it remains to be seen whether these developments will be temporary or structural in nature, the core of this reconfiguration phase will require a clear focus on execution and implementation.
A main challenge facing the industry will be the pivot from a period of sustained growth to a world where credit and market risk management, cost optimization and digital engagement will dominate as the global economy lurches into recession. Simultaneously, firms need to ensure that their core business models survive and thrive beyond this market crisis.
We believe industry players should focus on three key areas:
The global Capital Markets infrastructure has been tested throughout this crisis with unprecedented volumes, the move to fully electronic trading floors, remote trading operations and the need to keep markets orderly and liquid. Across the board and up to now, the industry has stepped up, performed and been part of the solutions required to mitigate the financial impacts, maximize access to credit and capital as well as keep our world’s economies functioning.
This crisis will, however, further accelerate the industry’s need to change and adapt. To thrive tomorrow, we believe firms need to move to the technology architectures of the future. This call to action will separate the truly agile from those who might continue to suffer from an ever-increasing legacy technology burden that will likely limit growth.
As Capital Markets firms are working to further stabilize their businesses, it’s more essential than ever for leaders to communicate with their people and their clients in an authentically compassionate, caring and confident way. Nearly all companies are still thinking through how to change their ways of working for the future. Concurrently, waiting to have the answers before communicating leaves people uncertain and afraid. Leaders who regularly and candidly communicate to their employees regarding what they know and don’t know highlight authentic vulnerability that—by and large—resonates with all employees.
Successful leaders will leverage this time of instability to not just return to business as usual, but also seize the opportunity for experimentation and innovation. As clients and employees alike are anxious and vulnerable, think of offering them something more purposeful to work towards and new solutions. Underpinning this is leadership—part personal, part professional, part a new leadership paradigm—balancing today’s planning, tomorrow’s execution and a personal touch.
This time is a real opportunity to innovate your business operating model and to fundamentally bend the cost curve to emerge stronger, faster and better than before. The Capital Markets are inherently flexible, dynamic and resilient; their players can and will be also.
Leaders could leverage new technologies—including applied analytics, artificial intelligence, machine learning and distributed ledger technology—in very different ways to drive efficiencies, enhance productivity and improve resilience and competitiveness. For example, with restricted travel and social distancing in place, companies will now have to revisit sales models and interactions with clients and investors. Omnichannel and ecosystem strategies that are more prevalent in retail and commercial banking today will rapidly become embedded within the Capital Markets sector. These models are likely to shape a future playbook that optimizes the real estate footprint and mitigates sales and travel expenses, while maintaining the client experience.
Recovery: What could be ahead
As the world emerges from this period of disruption, the Capital Markets industry will have a critical role to play in enabling the flow of capital to allow a quick rebound once the dust settles. Just as the Capital Markets industry needs to pivot to short-term cost management, it also needs to elastically pivot to support and drive growth. The fact that technology is playing an important role in mitigating the impact of the crisis is also an opportunity for the industry to become more innovative and more efficient.
We expect to see leading firms drive new operating models with differentiation, durability and cost-effectiveness at their core. The associated shift to a modern environment of digital, analytics, data, technology and cost resilience is highlighted even more now. We should take comfort in the resilience of modern economies’ ability to adapt to several shocks to consumption and outputs. It’s part of this new chapter. It’s a story about the art of the possible.
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