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Home > Capital Markets White Papers > Lessons from Change: The Challenging Banking Environment

Capital Markets White Papers

Lessons from Change: The Challenging Banking Environment

Ernst & Young

Executive Summary

The global financial crisis has had a profound impact on banks of all sizes. Institutions grapple with reduced public confidence, heightened shareholder scrutiny and increased regulatory oversight.

Troubled banks have been in need of government assistance, intervention and various stimulus packages. Many institutions need to divest certain businesses, while others struggle to fully integrate recent acquisitions.

Throughout the crisis, troubled banks have been in need of government assistance. Intervention and various stimulus packages included everything from the full nationalization of banks in certain countries to modest capital infusions.

Other intervention measures incorporated asset purchases as well as liquidity support and guarantee programs. Many institutions need to divest certain businesses, while others struggle to fully integrate recent acquisitions.

Banks hit hardest are cleaning their balance sheets and protecting assets. Those who fared relatively well are reshaping their business and governance models.

The current market turmoil will likely yield positive outcomes as banks reassess the way they do business and learn from these lessons the crisis brought to bear:

  • Improve the way risk is managed across the enterprise.

  • Recognize that liquidity is crucial, commanding center stage.

  • Look at streamlining businesses by returning to core competencies and seize opportunities through strategic acquisitions, when possible.

To effectively manage risk across the enterprise, organizations must define their risk appetite, embed a risk-aware culture and institute more robust risk forecasting and stress-testing.

In addition to risk management, liquidity is the focus of attention among executives, boards and regulators. Failing to manage liquidity properly can result in significant reputational damage — or worse, insolvency.

The fallout from the economic downturn has left banks struggling with other issues key to recovery, including tax and expense management; data quality in risk and finance; and greater regulation and government intervention. The industry response varies by institution.

One thing is clear: the financial services industry is in a state of constant flux. Forward-looking institutions understand that formalizing processes and systems — whether for risk management, liquidity risk or performance improvement — is necessary to support strategic decision-making and prepare for the unexpected.

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