17 September 2009
Franco Passacantando, Managing Director, Central Banking, Markets and Payment Systems Area, Banca d’Italia |
“There was too much innovation in the banking ecosystem over the last two years. Coupled with opacity and complicated by extreme leverage, that has created a challenging situation for us to work our way out of,” said moderator Shanker Ramamurthy, Global Managing Partner, Banking & Financial Markets, IBM, welcoming delegates to Thursday morning’s packed and lively cross-market session. The title of the discussion was, ‘Can we afford the future?’ but the debate went much wider than that.
A key topic was regulation. Picking up on discova central theme of Wednesday’s Big Issue debate, Karen Fawcett, Group Head of Transaction Banking, Standard Chartered Bank, said, “On the collaboration on the regulatory discussion, why don’t we come up with a proposal on how we should compensate ourselves? It’s fair. We are responding to challenges. We are not being proactive enough in terms of what we need to do.” Fawcett was also responding to a broader discussion about collaboration: in all the areas where banks don’t compete, shouldn’t they be more proactive about collaborating on the issues they share? Among the ideas that might be explored, the session heard, was some form of (possibly online) information-sharing resource dedicated to fraud prevention.
Return to past profits?
“The real question for us is: can we get back to the profits of the past, or are we moving towards a new normal?”
Shanker Ramamurthy, Global Managing Partner, Banking & Financial Markets, IBM |
Ramamurthy, who would steer the discussion through a wide range of this year’s key issues, began by reframing the session’s title. “The real question for us is: can we get back to the profits of the past, or are we moving towards a new normal?” Ramamurthy, who had already described the current banking ecosystem as “operating in a less-than-zero sum game,” now called for a card vote. The result: 80% of the audience had turned up for the session believing that the profits of the past were gone forever. “I wonder if we will change your minds,” said Ramamurthy.
Then Franco Passacantando, Managing Director, Central banking, Markets and Payment Systems area, Banca d’Italia, asked a question that drew nods of agreement (but no answers) from audience and panellists alike. “Do we deserve the future?” Passacantando asked. The answer to Ramamurthy’s question, Passacantando said, was no – or rather, not if we are referring to past profits based on the under-pricing of risk and inadequate capital provision. “Those profits of the past were not real profits. If we want to go to a more healthy growth of profits, we will have a future that we can all afford,” said Passacantando.
Pain before gain Discussing the performance of market infrastructures during the crisis, Jeffrey Tessler, CEO, Clearstream International and Clearstream Banking, said, “What regulators saw was the transparency coming through the stock exchanges. There was the discovaery of central co unterparties, both by the regulators and by government officials who probably hadn’t known, a year before, what the acronym CCP stood for.” Tessler did not develop a theme of how far governments had or had not climbed their steep learning curve about finance, but he did forecast a push of more business onto market infrastructures. “This will be challenging for the banks. It will potentially impact their business models going forward, especially around the OTC market where most of the pain points were,” said Tessler.
Karen Fawcett, Group Head of Transaction Banking, Standard Chartered Bank |
It was beginning to sound as though health would be difficult to achieve. Referring to Europe, Alain Closier, Global Head – Société Générale Securities Services and member of the group management committee, said, “We have cost and consolidation, and now regulation enters the picture. Implementation is key. Here, we have several dangerous pitfalls. The most important one is the speed of implementation in different countries. It is very important not to introduce discrepancies between countries.” This was Ramamurthy’s opportunity to introduce an alarming research statistic. “Today, there are 4,000 discrete new regulatory initiatives under consideration around the world.”
Proactive dialogue with regulators was clearly an urgent priority. But there was also good news. “We absolutely can get back to the same levels of profit,” said Fawcett. “But the lesson of the Asian crisis is that we’re only just beginning. We’ve gone through the mess and the panic; now it’s time to calm down and restructure.” That restructuring was not voluntary. Not all institutions would survive. But the encouraging precedent was that the Asian crisis had left regional markets stronger than before.
Had minds changed? With time pressing, Ramamurthy called for another vote. No, Had minds changed? With time pressing, Ramamurthy called for another vote. No, minds hadn’t changed. “But you had a very good try,” called Roberto Romanin Jacur, CEO of Istituto Centrale delle Banche Popolari Italiane, from the floor.
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