Instrumented Interconnecteds Intelligent

I recently moderated a panel at a private event we hosted in London and the biggest takeaway for me: the speakers seemed to have accepted the fact that things can not go back to the way they were.   Reform – for better, or for worse – is in the air.

The event was focused on ‘Smarter Banking’ and we had two industry luminaries – Lindsay Tomlinson (former BGI CEO, currently BlackRock Managing Director) and Bill Winters (former co-CEO of JP Morgan Investment Bank) debate the future of the industry.  Several themes emerged from this debate:

  • The purpose of the industry: The government and the industry have yet to define the industry’s purpose, its raison d’etre – and as a result there are many different opinions on what the new era will look like
  • Shrinking industry returns (for now): The expectation is around 10-11% (down from around 25-30%)
  • A need for more trust: There is a “crisis of legitimacy” – the industry has historically managed its own interests versus those of its clients – this will be reversed going forward
  • Compensation fixation: It will come down, but only to a point – even in the Bible, people griped about how much money lenders were paid
  • Role of government: Governments need both strategic vision and purpose otherwise they’ll go too far – it’s not about new rules it’s about new behavior

My biggest question going into the session was which ‘stage of grief’ is the industry currently in.  Our research plots the stages that firms in the mature* markets are currently going through:

  • Denial (this isn’t happening to me!)
  • Anger (why is this happening to me?)
  • Bargaining (I promise I’ll be a better person if…)
  • Depression (I don’t care anymore)
  • Acceptance (I’m ready for whatever comes)

When we asked participants ‘what keeps you awake at night’ 85% stated business model uncertainty.  As the industry moves through the stages from denial to acceptance, the industry must solve its business model identity crisis.  Although there seems to be a nearly universal nostalgia for the past, 90% of executives agree that both the past – and the returns that come along with it – are over (at least for now until we do it all over again).

While the debate is far from over, we will continue to explore these themes with our clients and partners as we determine what we should research next.

What are your views on the future of the industry – has the industry really accepted the new normal or is it still in denial?

*Note that the most often cited quote from our interviews in the developing economies goes something like this: “I’m not so sure they’re mature.  In my opinion we’re all developing economies and we’re all just starting or starting over.”

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5 Comments
 
October 11, 2014
12:40 am

Keeρ on writing, great job!


Posted by: use article writing
 
May 27, 2011
2:18 am

Suzanne,I am very impressed by your blog. Right up my street.
I have been involved in this industry for almost 30 years now and was very disappointed by how the crisis was “resolved”.
I think we are in desperate need of some disruptive approach.
Unfortunately, being based in Europe, this is not going to happen from here any time soon .
I am a keen follower of the Impact Investment movement

http://www.thegiin.org/cgi-bin/iowa/home/index.html

which I like to call “greed4good”.It may well be that this is the way forward. One cannot hope to change
human character but perhaps channel it into an appropriate use.
But again, it only just started a few years ago in the US and is next to nowhere in Europe.


Posted by: carl
 
November 19, 2010
1:24 am

I believe governments’ roles should be far, far less. They are, without question, the biggest culprits in this crisis. Manipulation of the currency via the Federal Reserve. Almost total abdication of their regulatory responsibilities. Almost complete refusal to even consider prosecuting massive and historical banking and financial fraud. Massive campaign donations from the financial industry fuel politicians’ campaigns, causing incredible conflicts of interest. Massive tax breaks, subsidies and regulations passed and enforced unevenly – benefiting only the biggest financial institutions while penalizing those who actually follow the law.

This has got nothing to do with government’s vision, nor does it have anything to do with re-envisioning how people behave. I personally believe that we should behave ethically, but how about this:

1. Enforce the law. Those who break go to jail. Period.
2. End the Fed. No more money printing, no more stealth bailouts of huge firms that have used private money, taken obscene risks and then shoveled their losses on the public.
3. Restore some semblance of the free market, which has the best possible vision of checks and balances: You fail, you lose your money, you’re done, bust, gone. Failure is a wonderful motivator. I can 100% guarantee that if these firms and banks had to account for their losses and were compelled to actually obey the law, they wouldn’t take near the risks they have, nor would they have committed such fraud. Because when the first bank went bust or when the first group of execs went to prison, they’d all quickly realize the jig was up.

I’m truly amazed at the number of complex solutions to our current financial mess. The solution is simple. Enforce the law and force risk-takers to account for their risks. I’m all for risk. I trade my own money and if I lose it, I’m out. That’s the way it should be all the way around.


Posted by: Pete Davis
 
September 21, 2010
11:34 pm

Suzanne, Yes I checked out your blog. Fantastic…………….You make some poignant comments. There is a crisis of legitimacy…………….now that’s an understatement!!

In Australia we have a “4 pillars policy”. Our Central Bank believes Australia’s so-called four pillars policy has saved the major banks from being crushed by the global financial crisis. They say it has allowed local banks to avoid the short-term risk-taking which has caused so much damage to the banking systems of the United States and Europe. Canada is the only other OECD country which has not had to use tax payers money to keep banks afloat.

If you run a banking system that may require a future Govt. bail-out, it is fundamentally flawed. That’s the first thing that these bankers should focus on in their forward thinking and the so called business model.

Any business model that does not address “a need for trust and long-term security through constant risk assessment ……………….for the benefit of the bank itself its shareholders, and valued customers” is working in the wrong business. Banks should be banks!!
KEEP UP THE GOOD WORK!!


Posted by: Tony Booth CFP
 
April 27, 2010
11:18 am

Interesting Blog Suzanne, thanks


Posted by: David Hodgkinson
 
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