Posted by Mark Brousseau
While CFOs are becoming bullish on the economy, they are concerned about health care reform, according to a biannual survey of banking and financial services Chief Financial Officers (CFOs) and senior controllers conducted by Grant Thornton LLP.
Nearly half (48 percent) of the banking/financial services CFOs said that they expect the U.S. economy to improve in the next six months and nearly two-thirds (65 percent) are optimistic about their own company; however, 55 percent also report that they plan to increase the prices or fees charged by their company in the next six months.
Regarding health care reform, 49 percent of banking/financial services CFOs said that it will decrease their hiring (compared to 37 percent nationally), 52 percent said that it would decrease their company’s growth (compared to 40 percent nationally) and 58 percent said that it would increase their product pricing (compared to 49 percent nationally).
“Although we are seeing increased optimism in the banking and financial services sectors, firms are also bracing for the increased compliance costs that accompany both financial reform and health care reform legislation,” says Nichole Jordan, Grant Thornton LLP National Banking and Securities Industry Leader. “Unfortunately, this means that increased costs from interchange fees to expanded health care will be passed along to the consumer or will affect how aggressively firms can hire.”
When asked about the business climate in their own state, 61 percent of banking/financial services CFOs said that they are seeing a negative impact on their business due to the financial condition of their state and 66 percent reported that the actions of the political leaders in their state have not created a business-friendly environment. In addition, an overwhelming majority (95 percent) support public-private partnerships that seek to reorganize and improve the function of state and local governments and public services as a means to overcome budget challenges at the state and local level.
“Although much of the industry has focused on the impact of national financial reform, banks also need to understand how the political and fiscal environments in their own states can affect their business,” adds Jordan.
What do you think?
Showing posts with label financial services. Show all posts
Showing posts with label financial services. Show all posts
Tuesday, June 7, 2011
Monday, May 4, 2009
Where's the Beef?!?!
Posted by Mark Brousseau
On Friday, April 24, US regulators revealed the methods and criteria used for stress testing the nation's largest banks to determine their financial health. TowerGroup, a leading financial services research and advisory services firm, believes that current stress-testing methodology is "a bun without the beef," observing that the current process only touches the surface and lacks the substance needed to accurately measure the depth of banks' resiliency.
From an international perspective, TowerGroup believes the latest revelations from the US will do little to reengender confidence in the international banking system. Instead, stress testing will confirm suspicions about the underlying differences among various nations' regulatory approaches to addressing bank stability and recapitalization.
"The stress testing of banking institutions is a major undertaking that turns traditional testing by means of "what if" scenarios on its head with its far-reaching assumptions. However, the assumptions made in the documentation of the stress testing methodology still fall short of capturing the dynamics of the industry going forward," said Rodney Nelsestuen, Senior Research Director in the TowerGroup Financial Strategies and IT Investments Cross Industry research service. "The US government is trying to get an accurate reading of an institution's ability to survive more bad economic news. The approach being used can answer only the questions it asks, leaving many potential outcomes unknown and untested."
TowerGroup notes several misguided views the public may infer from the documents released by the Fed last Friday and explains the reality that is counter to each view:
Myth 1: The option to convert TARP to common stock should provide comfort to stakeholders.Reality: One of the most worrisome motives behind stress testing is the intended conversion of Troubled Asset Relief Program (TARP) funds into common stock. Given the continuing deterioration in credit portfolios and faltering business performance, it is irrational to think that financial service institutions (FSIs) are safe because their capital is adequate due to government assistance when the assistance also increases government control and hampers the performance of independent banks.
Myth 2: Common stock is mainly a cushion to absorb losses. Reality: Investors buy common stock hoping to earn dividends and benefit from share appreciation over time. The government document on stress testing ignores the fact that millions of people in the United States are also shareholders through mutual funds and 401(k) programs. Thus, to say that common stock exists to absorb losses mischaracterizes the overall role of common equity in any publicly held company.
Myth 3: The regulatory actions are not shortsighted. Reality: The current stress test is a single exercise tied to a specific point in time, which is then applied to forward-looking economic criteria such as unemployment, growth of the US gross domestic product (GDP), delinquencies, and counterparty risk. TowerGroup observes that a major risk exists if people come to see the current stress-testing exercise as the final word on bank safety. Banks will need to assume the responsibility for their own stress tests and be accountable to stakeholders, of which the government is but one. Consistent internal testing will alert banks to potential systemic risks, allowing them to react before such events reach crisis proportions.
Myth 4: The absence of reverse stress testing is immaterial.Reality: Nowhere in the current stress-testing methodology document is reference made to reverse stress testing. Under the current approach, assumptions are changed to see what impact they have on bank viability. Reverse stress testing encourages more creative thinking to determine what events could have occurred to bring about the current economic downfall. Reverse stress testing would force the government and institutional leaders to think more broadly about cause and effect.
Myth 5: Stress testing is the final arbiter of financial strength.Reality: Verbiage in the stress-testing methodology document calls into question the stress-testing process used and any results to be derived from it. The cautionary statement is needed. Public anticipation of the stress-test results to be released on May 7 continues to be heightened, and the government is not doing enough to reduce that overreliance on the pending results. In addition, regulators have left themselves an out and can either justify or discount the outcome. The current testing is not a means to an end, but merely the beginning of efforts to rebuild the banking industry. The pending May 7 news should not be considered gospel in determining a bank's future success or demise. It is an attempt at identifying means for greater transparency and modernization.
On Friday, April 24, US regulators revealed the methods and criteria used for stress testing the nation's largest banks to determine their financial health. TowerGroup, a leading financial services research and advisory services firm, believes that current stress-testing methodology is "a bun without the beef," observing that the current process only touches the surface and lacks the substance needed to accurately measure the depth of banks' resiliency.
From an international perspective, TowerGroup believes the latest revelations from the US will do little to reengender confidence in the international banking system. Instead, stress testing will confirm suspicions about the underlying differences among various nations' regulatory approaches to addressing bank stability and recapitalization.
"The stress testing of banking institutions is a major undertaking that turns traditional testing by means of "what if" scenarios on its head with its far-reaching assumptions. However, the assumptions made in the documentation of the stress testing methodology still fall short of capturing the dynamics of the industry going forward," said Rodney Nelsestuen, Senior Research Director in the TowerGroup Financial Strategies and IT Investments Cross Industry research service. "The US government is trying to get an accurate reading of an institution's ability to survive more bad economic news. The approach being used can answer only the questions it asks, leaving many potential outcomes unknown and untested."
TowerGroup notes several misguided views the public may infer from the documents released by the Fed last Friday and explains the reality that is counter to each view:
Myth 1: The option to convert TARP to common stock should provide comfort to stakeholders.Reality: One of the most worrisome motives behind stress testing is the intended conversion of Troubled Asset Relief Program (TARP) funds into common stock. Given the continuing deterioration in credit portfolios and faltering business performance, it is irrational to think that financial service institutions (FSIs) are safe because their capital is adequate due to government assistance when the assistance also increases government control and hampers the performance of independent banks.
Myth 2: Common stock is mainly a cushion to absorb losses. Reality: Investors buy common stock hoping to earn dividends and benefit from share appreciation over time. The government document on stress testing ignores the fact that millions of people in the United States are also shareholders through mutual funds and 401(k) programs. Thus, to say that common stock exists to absorb losses mischaracterizes the overall role of common equity in any publicly held company.
Myth 3: The regulatory actions are not shortsighted. Reality: The current stress test is a single exercise tied to a specific point in time, which is then applied to forward-looking economic criteria such as unemployment, growth of the US gross domestic product (GDP), delinquencies, and counterparty risk. TowerGroup observes that a major risk exists if people come to see the current stress-testing exercise as the final word on bank safety. Banks will need to assume the responsibility for their own stress tests and be accountable to stakeholders, of which the government is but one. Consistent internal testing will alert banks to potential systemic risks, allowing them to react before such events reach crisis proportions.
Myth 4: The absence of reverse stress testing is immaterial.Reality: Nowhere in the current stress-testing methodology document is reference made to reverse stress testing. Under the current approach, assumptions are changed to see what impact they have on bank viability. Reverse stress testing encourages more creative thinking to determine what events could have occurred to bring about the current economic downfall. Reverse stress testing would force the government and institutional leaders to think more broadly about cause and effect.
Myth 5: Stress testing is the final arbiter of financial strength.Reality: Verbiage in the stress-testing methodology document calls into question the stress-testing process used and any results to be derived from it. The cautionary statement is needed. Public anticipation of the stress-test results to be released on May 7 continues to be heightened, and the government is not doing enough to reduce that overreliance on the pending results. In addition, regulators have left themselves an out and can either justify or discount the outcome. The current testing is not a means to an end, but merely the beginning of efforts to rebuild the banking industry. The pending May 7 news should not be considered gospel in determining a bank's future success or demise. It is an attempt at identifying means for greater transparency and modernization.
Monday, March 9, 2009
The Case for Going Green
By Mark Brousseau
Some interesting data points from Information Management magazine on the case for going green:
… Eighty-eight percent of financial services executives told IBT Enterprises that green initiatives are important to their financial institution; 68 percent are converts because of lower operational costs.
… Datamonitor reports that tighter regulatory measures and advances in technology are feeding renewed interest in green IT.
… McKinsey & Company says data center energy use doubled between 2000 and 2006, and by 2012 is expected to double again.
… BPM Forum found that nearly 20 percent of those polled spend more than $1 million per year on IT energy consumption, and 8 percent spend more than $10 million.
What do you think? Post your comments below.
Some interesting data points from Information Management magazine on the case for going green:
… Eighty-eight percent of financial services executives told IBT Enterprises that green initiatives are important to their financial institution; 68 percent are converts because of lower operational costs.
… Datamonitor reports that tighter regulatory measures and advances in technology are feeding renewed interest in green IT.
… McKinsey & Company says data center energy use doubled between 2000 and 2006, and by 2012 is expected to double again.
… BPM Forum found that nearly 20 percent of those polled spend more than $1 million per year on IT energy consumption, and 8 percent spend more than $10 million.
What do you think? Post your comments below.
Sunday, May 11, 2008
Businesses Want Supply Chain Services
Posted by Mark Brousseau
There is a market for integrated financial supply chain management services, according to Financial Insights’ 2007 North American Commercial Payments Study.
Areas of potential cooperation clearly emerge in accounts receivable (A/R) and accounts payable, Financial Insights reports. The full benefits of financial supply chain reengineering have yet to be recognized, the consulting firm notes, indicating prospects for businesses, bankers and vendors to work together more closely to realize joint benefits. Banks have not grappled with their own business processes, and they do not have an execution framework, Financial Insights found. Meantime, businesses do not see them as supply chain providers or, if they do, they see them in the same position as supply chain vendors.
“Businesses are receptive to supply chain services, and banks have everything to gain and lose. Transforming payments to business processes is the key,” says Maggie Scarborough, research manager, Financial Insights Corporate Banking Advisory Services.
Is your bank offering integrated financial supply chain management services? Tell us about it by posting your comments below.
There is a market for integrated financial supply chain management services, according to Financial Insights’ 2007 North American Commercial Payments Study.
Areas of potential cooperation clearly emerge in accounts receivable (A/R) and accounts payable, Financial Insights reports. The full benefits of financial supply chain reengineering have yet to be recognized, the consulting firm notes, indicating prospects for businesses, bankers and vendors to work together more closely to realize joint benefits. Banks have not grappled with their own business processes, and they do not have an execution framework, Financial Insights found. Meantime, businesses do not see them as supply chain providers or, if they do, they see them in the same position as supply chain vendors.
“Businesses are receptive to supply chain services, and banks have everything to gain and lose. Transforming payments to business processes is the key,” says Maggie Scarborough, research manager, Financial Insights Corporate Banking Advisory Services.
Is your bank offering integrated financial supply chain management services? Tell us about it by posting your comments below.
Wednesday, January 30, 2008
The Compliance Challenge
By Mark Brousseau
If compliance challenges make you feel like a hamster running on a wheel, you’re not alone. Compliance costs grew significantly faster than net income for the financial institutions in a recent survey by the Deloitte Center for Banking Solutions. While compliance spending as a percentage of net income for the financial institutions surveyed were 2.83 percent in 2002, by 2006 it had grown to 3.69 percent, the survey of top 50 banks found. The indirect costs of compliance management are much greater, but more difficult to precisely measure.
The Deloitte Center for Banking Solutions also found that as costs have risen, financial institutions appear to have responded more by applying people to monitor compliance rather than focusing on process improvement and technology to manage it.
For instance, 95 percent of the financial institutions surveyed said their executives were much more involved in compliance management than in the past, with 40 percent saying that the time devoted to compliance had increased by more than 25 percent.
What do you think? E-mail me at m_brousseau@msn.com.
If compliance challenges make you feel like a hamster running on a wheel, you’re not alone. Compliance costs grew significantly faster than net income for the financial institutions in a recent survey by the Deloitte Center for Banking Solutions. While compliance spending as a percentage of net income for the financial institutions surveyed were 2.83 percent in 2002, by 2006 it had grown to 3.69 percent, the survey of top 50 banks found. The indirect costs of compliance management are much greater, but more difficult to precisely measure.
The Deloitte Center for Banking Solutions also found that as costs have risen, financial institutions appear to have responded more by applying people to monitor compliance rather than focusing on process improvement and technology to manage it.
For instance, 95 percent of the financial institutions surveyed said their executives were much more involved in compliance management than in the past, with 40 percent saying that the time devoted to compliance had increased by more than 25 percent.
What do you think? E-mail me at m_brousseau@msn.com.
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