Global banks now need to transition to materially different business models

July 2013

Developing new, sustainable business models that attract long-term funding has been a theme of Bank Governance Leadership Network (BGLN) discussions since the network’s inception. While uncertainty continues to complicate decision making, many agree that bank boards and management teams must begin making medium- and long-term strategic changes. One participant said, “I am surprised that people still think there is a lot of uncertainty. The question for me is not how much uncertainty there is, but, knowing it will continue, how do we deal with the uncertainty and not simply complain about it.”  Another pointed out that “global banks are supertankers, and decisions to change course need to be made very far in advance,” and observed further that although banks “would like to take [change] in steps … if you only talk about the next three years, you won’t get anywhere.”  While many banks continue to take a “last man standing” approachthat is, waiting for peers to scale back or exit businesses, thereby making their own business relatively more profitable and sustainablethis position will become increasingly untenable with an evolving macroeconomic and competitive environment. As another participant said, “Old business models are gone: there is no more prop trading, no more miraculous products driving profitability. You need a solid business case. The future is [profit and loss] and balance sheet efficiency.”  

In May and June 2013, BGLN participants met in London and New York to discuss the future of banking. They were joined by several participants from the credit rating, investor, and supervisory community, who offered their perspectives on this important topic: Greg Bauer and Johannes Wassenberg, Moody’s Investors Service; Robert Hingley, Association of British Insurers (ABI); Brad Hintz, Sanford C. Bernstein & Co; Steven Manzari, Federal Reserve Bank of New York; and Mike Trippitt, Numis Securities Limited. 

This ViewPoints captures the essence of those conversations, in which four key themes were discussed:

  • The fog of uncertainty is clearing

  • Non-bank competitors are emerging as the foremost threat to current business models

  • Boards must challenge conventional wisdom 

  • Banks need to bring key stakeholders along on the journey to the new normal