Through the financial crisis, it became clear that bank boards, executives, and regulators needed a new forum to address key challenges and risks, and to consider the industry’s future direction. The Bank Governance Leadership Network (BGLN) addresses key issues facing complex global banks.
The primary focus is the non-executive director, but the network also engages senior management, regulators, and other key stakeholders committed to outstanding governance and supervision in support of the mission to build strong, enduring, and trustworthy banking institutions.
The BGLN is organized and led by Tapestry Networks and supported by EY. It provides unique opportunities for candid dialogue among non-executive directors from leading global banks, bank executives, regulators, policy makers, and other stakeholders through private roundtable discussions, the annual Bank Directors Summit, and research work streams focused on critical issues for non-executive directors.
Recent network topics:
Though data is increasingly viewed as perhaps the most valuable asset companies have, banks face challenges in balancing the opportunities and risks in a changing data landscape. Banks sitting on mountains of data recognize the enormous potential in the information that they maintain—but they are in the early stages of generating value from it, including identifying ways to better serve their customers, improve efficiency across their organizations, enhance risk management and monitoring, and bring new and innovative products to market. However, as banks collect and use more data in new ways, they must navigate a variety of regulatory demands, technical obstacles, and growing concerns about data ownership and privacy that are limiting their ability to do so. Getting the governance and management of data right will require a more strategic approach if banks are going to fully capture the value of the asset while avoiding the potential risks and pitfalls.
On March 8 (New York) and March 14, 2018 (London), BGLN participants met to discuss the future of talent in banking. Securing and retaining talent has become essential to competing and innovating in this environment as banks fight for skilled people not only with their traditional sector rivals but also against a new wave of competition from technology giants and start-ups. Further, emerging technology applications, particularly intelligent automation, are already changing the workforce and are expected to have an increasingly profound impact in the near future. As the workforce changes and new skills become increasingly important, bank leaders are being forced to think differently about how talent fits into their strategies from the top down.
In December, Tapestry and EY hosted the US Bank Leadership Forum in Washington, DC. At the event, directors of large regional banks and subsidiaries of large foreign banks in the US were joined by Michael Gibson of the Federal Reserve Board of Governors and Morris Morgan of the Office of the Comptroller of the Currency for a discussion regarding evolving supervisory expectations for bank directors and the risks the sector is facing. Over dinner, Richard Davis, chair and recently retired CEO of US Bancorp, shared his perspectives on the challenges and opportunities ahead for bank boards. This ViewPoints synthesizes themes and ideas from the forum, as well as discussions with directors and regulators through the end of 2017.
BGLN participants met on November 28, 2017 in London. They were joined over dinner by Lord Jonathan Hill, former European commissioner. Banks remain under pressure to focus on core businesses, reduce costs, and update their technology, while still in the midst of implementing a range of new regulations. European banks, particularly in wholesale and investment banking, face global competition, while retail banking faces the greatest threat of disruption from new entrants. These pressures reopen debates about the relative benefits of simplicity and scale in various businesses. Participants discussed these issues, as well as Brexit, subsidiarization, and other challenges for international banking models, including the implications of Brexit for European operations.
Data is an increasingly valuable asset. Technology is enabling the creation of more data, improving the ability of financial institutions to gather, store, and analyze it. Protecting that data from cyber-attacks or breaches of customer privacy is imperative. Getting the balance right between managing the risks and grasping the opportunities increasingly requires a strategic approach to data governance and attention from boards of directors. On October 11th and 12th participants in the Bank and Insurance Governance Leadership Networks – directors, executives, regulators, and subject matter specialists – met in New York for the Financial Services Leadership Summit to discuss related issues. ViewPoints synthesizes key themes emerging from discussions, before, during, and after the Summit.
Rapid advances in technology, changing customer expectations, and competitive pressures are driving bank leaders to identify opportunitites for innovation. But encouraging innovation in the context of large, international institutions, which are closely supervised, is not easy. Nor is it easy for boards to understand what is possible and how quickly and in what areas they should be investing in innovative approaches. Regulators are determining how best to encourage responsible innovation, while politicians debate significant changes to regulation in the US and internationally. BGLN participants discussed these and related issues over the first half of 2017, culminating with a meeting in New York on June 8.
Non-financial risks have been among the greatest sources of risk for large banks since the financial crisis. Conduct and compliance issues, systems failures, and cybersecurity have risen to the top of risk committee agendas, but remain difficult to monitor, measure, and predict. Even as technology offers new mitigation tools, the transformative changes underway in large banks are creating new and different sources of non-financial risks. As banks overhaul systems, operations, business models, and structures to become more agile and efficient, the pace and scale of change is creating execution risk. As banks navigate their way through this transformation, boards and executives are identifying ways to improve management and oversight of these risks.
Cyber risk has attracted a great deal of attention in recent years, and banks, who are among the most-targeted, have made substantial investments in cybersecurity. Despite this investment, cyber vulnerability continues to present unique challenges for risk management and oversight. As technology is increasingly embedded in all aspects of banking, cyber risk is expanding, requiring greater board attention. In response, boards are taking steps to improve governance and oversight of cybersecurity. At the same time, regulatory authorities are becoming increasingly prescriptive in defining cyber risk expectations and emphasizing the role of governance and controls.
In October 2016, Tapestry Networks and EY hosted the Financial Services Leadership Summit, which brought together more than 80 financial sector leaders to discuss the extraordinary changes happening across the financial services landscape. Participants included directors and executives of the largest global banks, insurers, asset managers, regulators, fintech entrepreneurs, and other subject matter experts. ViewPoints synthesizes these and other discussions with participants in the Bank and Insurance Governance Leadership Networks over the second half of 2016. Technology is lowering the barriers to entry for emerging competitors and transforming the way incumbents do business, rapidly altering the competitive marketplace. At the same time, unprecedented macroeconomic and geopolitical conditions, driven by underlying structural changes, are creating a degree of uncertainty about the environment through which leaders must guide these institutions. Regulation will need to continue to evolve in response. A summit participant summarized, “Revolutions only get called with hindsight … We are in a period of accelerated evolution that will be called a revolution in financial services.”
Technology is reshaping the competitive and operating landscape for banks. They face competition from tech-enabled competitors with new models, and pressure to reduce costs and improve efficiency. As technology becomes increasingly central to all facets of bank strategy and operations - from compliance and data analysis to the customer interface - bank boards need a more holistic, strategic view of technology investment. Regulation meanwhile, is slowly adapting to the changing environment.
Governance is now a cornerstone of supervision. As such, effective boards are important to supervisors, who have been raising expectations for boards and directors, accompanied by increasing calls for board and individual accountability.
Over the last several months, directors and supervisors shared perspectives on expectations for bank boards and directors, including roundtable discussions in New York and London. These discussions highlighted that while directors accept heightened expectations for engagement, including a significant time commitment relative to other corporate boards, there remain opportunities to improve clarity regarding the role of a bank board and realistic expectations for what it can accomplish.
All large banks continue to face political, regulatory, and market pressure. European banks face particularly daunting challenges. As Europe pushes for a banking union, the ECB’s role as a single regulator and supervisor for the Eurozone becomes an important player in the transformation of European banking. Having completed its first year, it wants to establish itself as a strong regulator and ensure the stability of the European banking system. At the same time, many European banks are faced with the need to fundamentally address their business models in the context of a broader policy debate about what banking structures will best support European economic growth.
At the seventh BGLN Summit, participants focused on how banks are adapting strategies, business models, and operations to a changing competitive landscape. Non-executive directors and senior executives from among the largest global banks were joined by regulators and other participants representing investor and other stakeholder perspectives for discussions on some of the challenges and opportunities for banks as they seek to improve returns and attract investment. This ViewPoints synthesizes themes emerging from the summit discussion including how regulation is driving changes to bank structures, the need to build more agile banks to attract investment, increasingly active investors and requests for board-shareholder engagement, and potential systemic risk stemming from reduced market liquidity.
Bank Governance Leadership Network
Senior Independent Director, Risk Committee Chair, Governance and Nominating Committee Member, UBS