Short term survival tactics could undermine the longer term viability of the banking industry

The future success and survival of banks currently mired in the financial crisis will depend on alignment of key fundamentals and this will differentiate the leading banking institutions from the second tier players in the future, according to a new paper from PricewaterhouseCoopers (PwC) titled ‘The Future of Banking: Returning stability to banks and the banking system’.

The new PwC paper provides a blueprint for change. It advises that a clear strategy and vision will be essential for the banking industry but warns that it must also get all the fundamentals right.

Ronan Doyle, Partner, Banking & Capital Markets, PwC, said:

“Banks need to act quickly to develop comprehensive plans, first to stabilise their businesses and then to move forward. Typical reactions from the banking industry to the current financial crisis have, understandably, been short term in nature and, in many cases, driven by the need for survival.

“The risk is that taking a short term view can undermine the longer term viability of the business. Banks are highly complicated structures and the temptation for a quick fix can divert them from doing the ‘right thing’.

“To ensure future success, banking strategy must get the fundamentals right; governance, risk and control; financial management; delivery; legal and physical structures; and people and reward. The ability to address all of these issues, in the correct order and to ensure that responses are aligned will be of critical importance to survival.”

The key fundamentals that banks must address include:

Determining strategy: No organisation is starting with a bk sheet of paper, so management must clearly understand their starting point and ensure actions are taken to address past strategic errors, such as the creation of toxic portfolios, or entry into market segments where no competitive advantage exists.

Building the business model to deliver the strategy: The model will need to flow from the overarching strategy and be clear for each business so they can manage their underlying risk profile and particular funding requirements. Leaders need to act decisively and make the hard decisions on what to retain and grow, and what to shrink or dispose of.

Garrett Cronin, Partner, Performance Improvement, PricewaterhouseCoopers, added:

“The current crisis presents a real opportunity for banks to re-evaluate their business models. Once demand returns, focus will be on meeting customer needs, not on fixing the plumbing”

Ensuring that the management of capital, risk, regulation and governance is nothing short of world class: Capital is a scare resource, the systems and processes that govern its deployment must be robust and effective.

Garvan O’Neill, Partner, Financial Services Regulatory Services, PwC added:

“This will require fundamental change at all levels. A clear understanding of the organisational and business risk appetite will need to be embedded throughout each business, followed closely by the measurement and accountability of the management.

“The need to look forward and evaluate different scenarios must be part of business as usual. The next crisis will not look and feel the same as the last so all assumptions need to be understood, tested and continually challenged.”

ENDS

Note(s) to Editor:

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