Thus, the corporate bank over the next decade could look very different than the one today, as it redefines its role in the new financial ecosystem. View in article, Ranina Sanglap and Baby Verma, “Indonesian M&A to still prove attractive for Asian banks in 2019,” S&P Global Market Intelligence, January 29, 2019. As a growth imperative, banks should therefore consider reskilling (and in some cases, upskilling) their internal talent pool. And by leveraging their technologies, exchanges can offer a market-in-a-box infrastructure. The Fed issued amendments to its capital planning framework Comprehensive Capital Analysis and Review (CCAR) and the Dodd-Frank Annual Stress Testing (DFAST), which should improve the design framework and boost the transparency of both.27. View in article, Robert Armstrong, “Investment bank job cuts near 30,000 as outlook sours,” Financial Times, August 11, 2019. Wells Fargo has been the eyesore of the banking industry for several years. On the positive side, the state of banks globally has again become more resilient, with the tier 1 ratio edging to 6.75 percent, up from 6.66 percent in 2017. “The new EU law on intermediate holding companies for third-country banking groups,” March 26, 2019. We also lay out our expectations across a few domains—regulatory, technology, risk, and talent (figure 4). Given lower prospects for growth, transaction banks should also double down on their own cost management and get a better understanding of their economic architecture. View in article, Elisa Martinuzzi, “Wall Street outguns Europe’s banks, again,” Bloomberg, June 10, 2019. With all of these factors, bank leaders should rethink traditional cybersecurity measures that may still be in place. See Terms of Use for more information. This leaves banks that provide cannabis-related banking services in a precarious position. Certain services may not be available to attest clients under the rules and regulations of public accounting. And open banking, the sharing of customer data between banks and other external parties upon a customer’s request, has taken root. Banks’ competitive advantages should continue to be their ability to manage risk and complex financial matters, conducting business in a highly regulated market, driving innovation to serve client needs, protecting clients’ privacy, and maintaining trust, all at scale. While the core intermediation function will remain the same—matching supply and demand for capital—significant changes can be expected in the services investment banks provide and their delivery. View in article, Gecas-McCarthy et al., “Federal Reserve Board proposes tailoring Prudential Standards for foreign banking organizations.” View in article, K&L Gates, “OCC and FDIC ease ‘Volcker Rule’ restrictions on proprietary trading: SEC, CFTC, and Federal Reserve expected to follow suit,” August 30, 2019. 2020 Outlook into the Banking Sector in Nigeria - ResearchAndMarkets.com February 28, 2020 07:27 AM Eastern Standard Time. Leveraging its hugely successful payment platform, Stripe, for instance, has forayed into small business lending.168 Challenger banks from Europe, meanwhile, are seeking new markets after seeing rapid growth in their home region. View in article, Federal Reserve, April 2019 senior loan officer survey, April 2019; Reuters, “Loan demand falls among U.S. businesses, households: Fed banking survey,” February 4, 2019. Last year, we urged banks to reimagine transformation as a multiyear process and “change how they change.” This message, of course, is still relevant, but as we enter a new decade, banks should also fortify their core foundation on multiple dimensions, including technology infrastructure, data management, talent, and risk management. Do not delete! Comparing fintech trends across regions, it is clear that Asian fintechs have become the new venture capital darlings, garnering a bigger piece of the funding pie each year. Women in the financial services industry collection, Explore the Financial services collection, Download the Deloitte Insights and Dow Jones app. 5. According to a survey of more than 1,000 U.S. banking customers by Statista, over half of respondents said they were either already using a digital-only bank as an alternative or were familiar with the option and probably going to use it. While banks have made notable strides in assessing and mitigating risk across the enterprise in recent years, the next decade will likely test their ability to continue to modernize the risk function. View in article, Paul Clarke, “The AI revolution comes to investment banking,” fnLondon, January 10, 2019. Prior to joining Deloitte, she was an investment research analyst. Lower economic growth and depressed rates, meanwhile, could prompt strategic reviews, and former buyers may become sellers. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. eMarketer estimated that about 45 percent of the Chinese population used mobile payments in 2018, compared with 23 percent in the United States and 15 percent in the United Kingdom.78. However, the appetite to do deals has been suppressed, given that almost every institution is still preoccupied with internal house cleaning.162 The political realities of cross-border mergers further complicate the picture. Banks can add customer value by fortifying their foundation and staying true to their core identity as financial intermediaries, matching demand with supply of capital. Even with recent efforts by Chinese regulators to stimulate lending and offset the impact from declining exports, corporate loans in China have sharply fallen over the year,126 and corporate bond defaults have soared.127. View in article, American Bankers Association, “The state of digital lending,” January 8, 2018. The US banking industry has shown modest improvement in most areas and remains strong. Banks will likely increasingly cater to a greater good, placing themselves at the forefront of tackling large socioeconomic issues, such as climate change or social equity. View in article, Alexander Osipovich, “Exchanges face higher hurdles in boosting data fees,” Wall Street Journal, May 21, 2019; John McCrank, “Exclusive: SEC scrutinizes fairness of stock exchange pricing,” Reuters, March 7, 2019. Leadership perspectives from across the globe. They should also explore ways to foster connections for their virtual workers. Social login not available on Microsoft Edge browser at this time. Please see, Telecommunications, Media & Entertainment, Transaction banking: Need for bold change, Within reach? For instance, revenues from cash management, a rate-sensitive business, and trade finance grew 10 percent to US$19 billion in 2018 for four of the largest global banks.113 Similarly, global securities services revenues grew in high single digits year over year in 2018, with custody services contributing most to this increase.114 Meanwhile, the lackluster performance of the US$3.2 trillion hedge fund industry was a reality check for many prime brokers, prompting them to reassess their exposure and tighten due diligence.115. ROC was 5.8 percent, while ROA was 0.31 percent, which was predominantly due to the low rates/low-growth environment.13 Assets decreased by 3 percent to US$13.1 trillion. View in article, University of Minnesota, “Corporate culture is most important factor in driving innovation," ScienceDaily, November 18, 2008. The top four largest banks globally this year were again Chinese.12 Meanwhile, Japanese banks have been unable to escape systemic growth concerns stemming from low growth and its aging population. In the United Kingdom, floating-rate notes totaling over US$30 billion tied to the Sterling Overnight Index Average (SONIA) have been issued in 2019.178 In Europe, the Euro Short Term Rate (ESTR) started being published in October 2019.179 Elsewhere, countries such as Switzerland and Japan have also made progress on identifying a replacement rate. Others are experimenting with moving their processes and data to the cloud. Offering advice should be a differentiating factor for banks as it becomes contextual and real time. See the digital banking industry trends of 2021. Financial institutions no longer face individual, rogue hackers but an ecosystem of highly skilled bad actors and nation-states. Smaller banks, in particular, tied to a single core vendor in most cases, could find achieving their digital ambitions out of reach, so prioritizing modernization efforts could be key for them as well. To address fiduciary responsibility, the US Securities and Exchange Commission (SEC) approved Regulation Best Interest (Reg BI) in 2019,29 which enhances conduct standards for broker-dealers and investment advisers when dealing with retail clients. Richa Wadhwani is a manager at the Deloitte Center for Financial Services focusing on banking and capital markets research. View in article, Anthony S. Boyce et al., “Which comes first, organizational culture or performance? Do not delete! The London Stock Exchange Group’s (LSEG’s) bid for Refinitiv143, a market data provider, and the Hong Kong Exchanges and Clearing Limited’s (HKEX’s) rescinded deal for the LSEG may foreshadow a new chapter for the industry.144. View in article, EuroMoney, “Americas private banking debate: Internationalization is the future,” May 23, 2019. As financial institutions await legislative clarity, they should continue to prioritize their ability to rapidly respond to updates. Nonfinancial risks are also top of mind for regulators, as their consequences become more apparent across cybersecurity, business resiliency, compliance, operational risk, data governance, and data quality. Exchange trading volumes in fixed income securities, futures, and options have also expanded, though mostly for smaller trade sizes. In the end, no matter what type of innovation payment firms engage in, they should aim to develop products in smaller, bolder cycles. Financial institutions on high alert for major cyber attack, Just how much are financial institutions spending on cybersecurity? Q3 2020 hedge fund letters, conferences and more. Transaction banks will increasingly become orchestrators of the financial ecosystems for global commerce and asset servicing. View in article, Nicholas Comfort and Alexander Weber, “Why that European bank M&A wave faces huge hurdles,” Bloomberg, April 23, 2019. A push toward less risky investment advisory models is expected in 2020. View in article, SIFMA and Deloitte, “A firm’s guide to the implementation of Regulation Best Interest and the form CRS relationship summary,” September 27, 2019. The ARRC has also held extensive consultations with industry groups, including the International Swaps and Derivatives Association (ISDA), the Structured Finance Association (SFA, formerly SFIG), and Loan Syndications and Trading Association (LSTA). Additionally, banks should proactively work with their corporate and buy-side clients to ensure a smooth transition process. (See Reimagining customer privacy for the digital age for more information.). Financial services clients expect meaningful and personalized experiences through intuitive and straightforward interfaces on any device, anywhere, and at any time. Furthermore, fundamental demographic changes across the globe will likely alter growth dynamics significantly. The impact of these technologies, though, is only one part of a major shift that’s happening across industries. Despite what happens, banks should remain true to their core identity as financial intermediaries: matching demand with supply of capital. While concern still exists about fintechs’ growth and their impact on the financial system,169 regulators are encouraging innovation through sandboxes and new charters or licenses.170. Wealthtechs, increasingly partnering with incumbents, could also be an important part of this ecosystem. Prior to joining Deloitte, Jain gathered experience as a consultant. There could very well be greater competition from insurance companies, private equity firms, traditional asset managers, and fintechs in the corporate lending space. This can put them on solid ground to fail fast, learn faster, reduce time-to-market, and revive their relevance. Banks will also be the trusted resource for advice, through machine-augmented intelligence. As technology continues to advance and new forms of data emerge, how should banks adapt their privacy practices? According to the Banker,2 return on capital (ROC)3 as of 2018 was 13.7 percent, higher than 13.5 percent at the end of 2017.4 However, the industry still has not found its way back to sustainable profitability levels, with return on equity (ROE) of 9.6 percent being below the 12 percent mark often associated with banks’ cost of capital.5 Global assets declined to US$122.8 trillion, mainly due to the disposal of noncore assets by European banks (figure 2). Also, with an increased focus on cost management on the client side, treasurers may shop around for better pricing. For this year’s outlook, we’ve identified seven additional topics for the banking and capital markets industry: US tax reform, cyber risk, M&A, fintechs, LIBOR, privacy, and climate change. However, in such times, banks, the backbone of the economy, have a fundamentally important role to play as they provide liquidity to Banks should rethink and innovate pricing models accordingly. Challenged with legacy technology and data quality issues, most banks are unable to achieve the desired returns on their modernization initiatives.42 As a result, there might be a need to shift attention and adopt a back-to-basics approach in 2020 before banks can fully reap the rewards from advanced technologies. While still in the early stages of its evolution, it is most evident in Australia, the United Kingdom, and other countries in the European Union. Samia Hazuria is an assistant manager at the Deloitte Center for Financial Services. View in article, Lauren Feiner, “Slack shares surge 48% over reference price in market debut,” CNBC, June 20, 2019. PwC Retail Banking 2020 Overview. Faced with this shift and heightened competition, many corporate banks are prioritizing digital transformation. US top performers that have benefitted from recent rises in valuation will be ready to scoop up weaker players. View in article, Irena Gecas-McCarthy et al., “Federal Reserve Board proposes tailoring Prudential Standards,” Deloitte, October 31, 2018. The sales and trading business will likely undergo the most notable transformation. The areas that are likely to be most impacted by COVID-19 are: Profitability and credit management/cost of risk Increasingly, differentiation and premium pricing will be driven by “payments+” services. Outlook. Jan Schoeps is a research manager at the Deloitte Center for Financial Services. The US Federal Reserve Board (“the Fed”) is tailoring a proposal to implement the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which would ensure that stringent requirements for the largest financial institutions are in place but are scaled back for those that fall below the legislative threshold.23 Additionally, tailoring the EGRRCPA would provide some relief to foreign banking organizations below certain thresholds.24 These proposals together are expected by year-end 2019. What is Automatic Exchange of Information (AEOI)? Pervasive challenges included a structurally lower net interest margin (NIM) due to the continually fragmented European market and oversaturation of banks in key markets, such as Germany. The ECB’s curtailing of “back-to-back” booking models, which would otherwise enable banks to manage capital and risks from the United Kingdom, has cemented the expanded EU presence of banks.112. The Banking Industry Will Face A Range Of Challenges In 2021. The daily volatility in SOFR reached record levels, but the 90-day average, which will be the basis for most transactions, was negligible.175. The Fed’s announcement to enter the faster payments space as an operator of FedNow is a noteworthy development.80 While use cases of faster payments span the spectrum, business-to-business (B2B) payments—where there are still rampant inefficiencies, such as paper-based invoicing, check payments, and tedious reconciliation processes—often holds the most promise. View in article, António Guterres, United Nations Secretary General, remarks at high-level event on climate change, September 26, 2018. View in article, Julie Bernard, Ed Powers, Emily Mossburg, “Just how much are financial institutions spending on cybersecurity? But the number of new startups has declined, which has been the trend for the last four years. The Office of the Comptroller of the Currency (OCC) announced in 2018 that it would begin accepting fintech bank charter applications, but a federal court recently ruled that it lacked the authority to issue a bank charter to any entity that does not have federal deposit insurance.32, Meanwhile, although cannabis has been legalized in numerous states, it remains illegal under federal law. View in article, Alexander Jones, “Why robo-advisors are struggling to break even,” International Banker, July 3, 2019; Helen Avery, “Private banking: Wealthtech 2.0 – when human meets robot,” EuroMoney, February 6, 2019. Meanwhile, speed bumps, which artificially slow markets to remove “latency arbitrage,” are becoming more common in the United States. Some established fintechs are also tweaking their business models, more so than in the past, by diversifying across geographies and segments. Last year, we noted a divergence in global regulatory standards, as many countries looking for ways to spur economic growth bucked the previous trend of postcrisis synchronization. The financial services industry is expected to react swiftly once clarity is gained, both from a business standpoint as well as operationally. Wells Fargo’s second quarter earnings report was awful. Outlook 2020 With a new decade comes new challenges and opportunities. Highlights from the Deloitte 2020 banking industry outlook 25.03.2020 Banks have come up against numerous challenges in the last decade, with slow recovery following the financial crisis, and a new wave of disruptors changing the way banking is done. 1. Some are exploring managed tax and technology services to keep costs low as they struggle to increase their budget so they can perform these activities in-house. 4 2020 Global bank regulatory outlook Four major themes dominating the regulatory landscape in 2020 3.“Regulation of virtual asset trading platforms” Hong Kong Securities and Futures Commission (HKSFC) position paper, November 2019. Banks need to choose what posture they want to adopt - to lead the change, to follow fast, or to manage for the present. Technology can increase efficiency by automating manual processes, assist in identifying emerging threats, and provide insights into risks and their causal factors.52 Robotic process automation (RPA), for instance, can be used to reduce human error by flagging exceptions in large data sets. 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