If history has taught us anything it is this- No “ship” or “bank” is too big to sink or fail! We are not talking ships here though. We will stick to Banks, which are making pretty interesting reads these days.
To make banks “fail-proof” Banking regulators in the US have been inundating banks of all asset sizes with torrents of regulatory and compliance requirements. Some of these regulatory legislations runs to thousands of pages! Dig this. The Dodd Frank Act now runs to 22000 pages and counting!
46 % banks have scaled down efforts to grow loan and deposit accounts owing to increased spending on regulations. The top half dozen banks by assets, just three years ago, spent $70 billion on compliance, nearly double the year before, and costs continue to rise as number of regulations gain traction.
American Banker’s Association Survey
As daunting as the regulations may sound, implementation costs of these regulations too are spiraling to billions of dollars. Take JP Morgan Chase for instance. 2016 saw JP Morgan spend $9billion on controls alone!
Prevention & Preparation-Two sides of the coin
Low interest rates and high capital requirement coupled with increased regulatory costs have caught banks in a never ending loop of conundrum driving down profitability. Changing macroeconomic environment and changing government regime usually have an after effect on the financial industry. The US banking regulatory authorities- FRB, FDIC, FASB, OCC, FSOC has been focusing on preparing banks for tackling unforeseen circumstances by inundating them with alphabets of regulations (read Dodd Frank, Volcker rule, CECL, AML etc) and stress-tests among others. Those that are unable to adhere to, had to pay hefty fines. What has fallen under the blind eye of regulatory watchdogs and banks themselves, is the need for placing prevention mechanisms in place.
Every new regulatory acts and norms puts pressure on banks to implement them at the shortest possible time. And it comes at a cost- Increased reporting costs, data collection costs, data management costs, transition costs, additional human resource costs and supervisory costs are the most glaring. This significantly affects product pricing, reduces competitiveness and places less regulated fintechs at a competitive advantage. While banks cannot do much about interest rates or capital requirements, they can certainly work towards preventing burgeoning regulatory costs against uncertain scenarios.
Uncertainty-Proof Configurable Unified Platform (CUP) for Lending
Imagine banks having the capability to adjust to every changing regulations while incurring almost no extra cost or no impact on real-time business, while retaining their investment in legacy infrastructure. Imagine banks being Uncertainty-proof.
A configurable unified technology platform for commercial lending can work as the panacea for most or all lending woes of bankers. To understand how a CUP framework can help you watch this space for more.