Some puzzles are fun, while others are not. The sovereign-bank diabolic loop puzzle is definitely not fun for the European governments and banks victimized by it. Trapped in the loop, banks hurt sovereigns, while sovereigns return the favor by hurting banks. Is there a way to break free of this deadly embrace? New research shines a light on a possible channel to freedom that strangely enough originates in the US.
European Banking Authority
Europe’s banks deserve a lot of credit for weathering less than ideal conditions, such as ultra-low interest rates and profitability in conjunction with high levels of fintech competition and toxic debt. But while conditions haven’t improved much lately on the interest-rate side, the bad-debt situation is considerably brighter. Astute regulators and governments deserve much of the credit, but so do the banks themselves for revamping their management of nonperforming loans.
The European Union has put up a brave front against financial crimes such as money laundering, but the criminals still manage to get away with a way too much ill-gotten gain. Progress is being made with the new AMLD5 framework, but much more needs to be done to achieve resounding success. What are some of the steps the EU should take to finally grab this brazen bull by its horns?
Diversity and inclusion have recently become top goals in the strategic policies of many banks, but how is execution matching up? Research continues to expose large gaps between good intentions on paper and good outcomes in practice. Diversity and inclusion are more than nice-sounding words; when realized, they boost profitability. Banks that go no further than prioritising these goals in mission statements miss out on playing the ace.
Why do we need stress tests? Since the financial crisis, stress tests have become the main instrument of bank supervision. In stress tests, supervision interacts with regulation and bank capital requirements. Research highlights the role of stress-test supervision in dampening the incentives of banks to take risks, especially when capital requirements are not effective.
The Great Recession produced a number of aftershocks, including a tidal wave of regulations (with the?) intent on preventing the same event from ever happening again. A mismatch between increasingly complex and detailed international standards and ever more uneven implementation by national authorities ensued. Consistent, harmonized adoption of financial standards by all involved is necessary to ensure smooth global processes. Some suggestions are presented in this article.
For banks, cloud computing appears to be the perfect answer to the growth of big data—and the necessity to manage and exploit it. This shared pool of information offers increased efficiency at lower cost, but adoption can be challenging for banks, with regulators expressing concerns especially regarding customer data protection. Fortunately, success is within reach through effective collaboration between banks, regulators and cloud providers.
There’s no doubt about it. Technology has come to define the relationship between businesses and their customers. Industry by industry, companies are reacting to the changing expectations of their customers for a self-service, personalized, mobile-driven experience on one hand, and increasingly digital and data-focused regulation on the other.
Brexit negotiations continue, but little headway has been made regarding the final terms of the United Kingdom’s departure from the European Union (EU).
Getting regulatory compliance right is a necessity for financial institutions today, because getting it wrong is a punishingly expensive mistake. Just as fintech has been rapidly embraced by the industry due to its many proven benefits, the new kid on the technology block, regtech, is set to blaze its own innovation trail, disrupting the old ways of doing things in a bid to cut costs.