Rethinking banking: How to fit bank business models to regulatory constraints

Fernando De La Mora and Paul Sharma

Journal of Risk Management in Financial Institutions, 2016, vol. 9, issue 4, 351-362

Abstract: Open risks identified during the global financial crisis that started in 2008 are now being addressed by global banks post-crisis, focusing on the improvement of loss absorption to their capital and funding. Global banks, labelled as global systemically important banks (G-SIBs) by supervisors, have been busy coping with regulatory change over the past five years and complying with new business restrictions (eg, constraints on capital, liquidity and leverage; bail-in and total loss absorbing capacity (TLAC) schemas; and stress testing). G-SIBs have been successful in anticipating and meeting the new regulatory hurdles. They have done so by individually undertaking balance sheet corrections to meet higher capital and liquidity constraints. As regulatory uncertainty diminishes and the fog starts to dissipate, it is clear that banks are finding it challenging to meet investor demands for adequate returns. It is time for banks to embed regulatory constraints in strategic planning and management performance, so that proper incentives are in place to achieve business model optimisation. In other words, it is time for banks to rethink their strategies in order to fit business models to the new normal in regulatory constraints.

Keywords: bank strategy; bank business models; banking supervision; financial regulation; capital; liquidity; leverage; TLAC; stress test requirements; risk management (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2016
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