The European Banking Authority (EBA) has published a speech given by its Executive Director, Adam Farkas at the Deutsche Bundesbank Conference. The speech is entitled Bank business models – structural changes and their systemic implications.
In his speech Mr Farkas makes a number of points including:
- the main objective of business model analysis is to allow competent authorities to develop a view on two main areas. They should have a view of the current business model of the supervised institution, and its viability. They should also understand how the business model may evolve as a result of strategic choices made by the institution and/or the impact of changes to the business environment in which it operates, and therefore, its risks and sustainability;
- the first step in the process of banks’ business model adaptation should be fixing their strategy. Banks’ future strategy needs to take into account the potential prolongation of the current low interest rate environment, the pace of cleaning up of their balance sheets, the implementation of Basel prudential rules and the new resolution framework, as well as the possible future developments of the Capital Market Union. In the context of this strategy, banks should also re-assess their risk appetite. The most successful banks need to develop a risk strategy beyond regulatory compliance focusing on the overall business risk management. Besides their risk culture, banks also need to develop their business culture, addressing both their customers as well as their employees; and
- financial technology is shaping the pallet of financial products and services banks offer to their customers and also changing the way their clients are approached. To compete with non-bank competitors, banks need to get closer to their customers by creating a completely virtual experience, potentially modifying the role of primary account providers. Based on the last EBA risk assessment report, most banks admit the rapid growth of FinTech firms markedly impacting their business especially in retail banking and payment and settlement. The most disrupted business line is payments and settlement which is perceived as an opportunity for banks to either increase revenues or reduce costs.
View EBA speech – Bank business models – structural changes and their systemic implications, 20 February 2018