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Practice paper

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, 9 (4), 351-362 (2016)
https://doi.org/10.69554/QYRG4342

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

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Author's Biography

Fernando De La Mora is a Managing Director and Head of Alvarez & Marsal in Spain and Portugal. He specialises in providing advice to financial institutions in the areas of strategy, capital, stress testing and risk management. Fernando brings more than 21 years of experience conducting a wide variety of consulting projects for banks. He is well versed in sector trends, performance drivers, and risks facing the banking industry. His clients include global financial services firms, investment banks, regional banks, insurance companies, asset managers and hedge funds.

Paul Sharma is a Managing Director with Alvarez & Marsal and Head of the firm’s Financial Industry Regulatory Advisory Services practice based in London. He was formerly Deputy Head of the UK’s Prudential Regulation Authority (PRA) and an Executive Director of the Bank of England. He has over 20 years of experience as a top UK, EU and global regulator of banks and non-bank financial services firms. Paul was a member of the Basel Committee on Banking Supervision (BCBS) and a member of the Board of Supervisors for the European Banking Authority (EBA) and European Systemic Risk Board (ESRB).

Citation

Mora, Fernando De La and Sharma, Paul (2016, October 1). Rethinking banking: How to fit bank business models to regulatory constraints. In the Journal of Risk Management in Financial Institutions, Volume 9, Issue 4. https://doi.org/10.69554/QYRG4342.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 9 / Issue 4
© Henry Stewart
Publications LLP

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