After years of relentless focus on costs, settlements and regulations, the future of banking is looking brighter, agreed panellists in a session at the World Economic Forum Annual Meeting.
On the regulatory front, the majority predicted a significant paring-back of regulatory regimes such as Dodd-Frank, the Volcker rule and Basel IV.
The low interest rate environment over the past seven years has been tough for the banking sector, says Brian Moynihan, chairman and CEO of Bank of America. “Business confidence is reviving and the US economy will grow 2% this year.”
This, along with efficiencies gained from digital transformation within banks, will underwrite long-term recovery among US banks, he adds.
António Horta-Osório, chief executive of Lloyds Banking Group in the UK, likens the banking system to the vascular system in the human body.
“You don’t have strong economies in the long term if you don’t have a strong banking system,” he says.
He also touched on the implications of Brexit, pointing out that, despite uncertainties, London continues to have structural benefits including time zone, attraction of global talent and the necessary infrastructure.
“The focus on regulations has perhaps been at the expense of growth,” says Mary Callahan Erdoes, CEO: asset management at JPMorgan Chase & Co.
She points to the fact that JPMorgan spends around $9-billion on internal controls and needs to deal with 25 000 line items and five different regulators just to fulfil their Dodd-Frank obligations. There is some optimism that this burden will lighten under the Trump administration, which is seen as being more business friendly.
“Currently, less than 10% of cabinet positions have business experience; this will rise to more than 50% in the new administration,” she adds.
Europe needs more structural reforms to become competitive, says Sergio Ermotti, group CEO of UBS in Switzerland. Monetary policy was a necessary tool to escape the crisis but it has exhausted its effectiveness.
“It’s time to normalize,” he adds. He also called for a more constructive approach by regulators to international capital markets.
Ermotti outlines the need for greater industry cooperation in dealing with complex back-office functions. “The notion of infrastructure-sharing in the banking sector is not new and needs to be embraced again,” he says.
We are looking forward to a more constructive dialogue between the US and Russia, says Andrey Kostin, president and chairman of the VTB Bank Management Board, in the Russian Federation.
“Mr Trump should remove sanctions from the leading Russian banks,” he suggests, adding that this will help support privatisation and improve efficiency in the Russian banking sector.
Future is bright for banks
