The global financial crisis has changed the banking industry fundamentally and permanently.
While it is clearly critical to stabilise the business in the short-term, the banks that will emerge strongest from the crisis are already planning how to adapt their strategy to the new business, capital and regulatory environment that is emerging from the turmoil. This includes identifying and targeting investment at market segments where they can add most value, while having the courage to scale back or shed less viable operations.
Many regulators will insist that banks hold larger capital buffers over the cycle, which will affect the make-up and strategic direction of many institutions. Banks being resuscitated by government funds are likely to concentrate on their core competencies and existing customer relationships. Those that are unhindered by large state shareholdings and substantial write-downs will have significantly more flexibility to strengthen their competitive position through a combination of organic growth and acquisitions.
A key determinant for success will be the quality and insight of risk analysis and how well risk awareness is built into governance, decision-making and incentive policies. Reducing needless complexity and simplifying overly convoluted structures will be crucial in both controlling costs and strengthening management oversight.
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