For the longer term, banks will need to move from traditional business models to more future-proof platforms, potentially decoupling business units such as everyday banking and complex financing or advisory services. Banks could consider several approaches. For example, they could foster highly differentiated customer relationships, with a strong focus on establishing a deep emotional connection. They also could develop proprietary data and insights on sets of customers, including with the use of advanced analytics. A third option would be to make substantial and clear bets when allocating resources and capital. Fourth, banks could create new customer access and revenue sources, such as subscription fees, payments fees, and distribution fees, that do not involve the balance sheet. And banks could focus on innovation, with the goal of instilling a truly entrepreneurial culture and attracting and retaining the talent needed to contribute within such a culture. Finally, as we describe in the next section, banks could develop a strategy for targeting environmental transformations.
But if the pandemic has not had the expected harmful financial effects on the global banking industry, it has certainly had plenty of others. Digital banking accelerated, cash use fell, savings expanded, remote became a way of working, and environment and sustainability are now top of mind for customers and regulators.
Successful financial-services providers take three steps to position their business for this shift. First, they attract customers by solving very specific yet relevant needs. Examples include Alipay and Klarna, which make shopping and cash management easier and convenient for small businesses through quick and simple onboarding, transparent pricing, new POS terminal features, and buy-now-pay-later checkout solutions.
Performance has been stable, particularly in the last five years or so, and when the above-mentioned increases in capital are figured in,9To view exhibit, refer to Global Banking Annual Review 2018: New rules for an old game: Banks in the changing world of financial intermediation. but not spectacular. Global banking return on equity (ROE) has hovered in a narrow range between 8 and 9 percent since 2012.10To view exhibit, refer to Global Banking Annual Review 2018: New rules for an old game: Banks in the changing world of financial intermediation. Global industry market capitalization increased from $5.8 trillion in 2010 to $8.5 trillion in 2017. A decade after the crisis, these accomplishments speak to the resiliency of the industry.
This condensed financial-intermediation system may seem like a distant vision, but there are parallel examples of significant structural change in industries other than banking. Consider the impact of online ticket booking and sharing platforms such as Airbnb on travel agencies and hotels or how technology-enabled disruptors such as Netflix upended film distribution.
Meanwhile the pressures of digitization, which boosts competition and compresses margins, are growing. Some emerging-market banks are managing well, offering innovative mobile services to customers. But our report finds that in the largest emerging markets, China and India, banks are losing ground to digital-commerce firms that have moved rapidly into banking.
In developed economies, digitization is impacting banks in three major ways. First, regulators, who were initially more conservative about the entry of nonbanks into financial services, are now gradually opening up. Over time, huge tech companies may be able to insert themselves between banks and their customers, capturing the vital customer relationship and presenting an existential threat. On the positive front, a number of banks are teaming up with fintech and digital firms, using big data and analytics to sharpen risk assessment and drive revenue growth. Lastly, many banks have been able to digitize processes and dramatically lower costs in their middle and back offices (although digitization can sometimes add costs).
The global banking industry continues to progress on the road back from the global financial crisis, improving return on equity 9.5% in 2013 and 9.9% in the first half of 2014. Most of the value creation is coming from banks that adhere to one of five distinctive strategies.
Much consolidation occurred in the financial services industry since, but not at the scale some had expected. Retail banks, for example, do not tend to buy insurance underwriters, as they seek to engage in a more profitable business of insurance brokerage by selling products of other insurance companies. Other retail banks were slow to market investments and insurance products and package those products in a convincing way. Brokerage companies had a hard time getting into banking, because they do not have a large branch and backshop footprint. Banks have recently tended to buy other banks, such as the 2004 Bank of America and Fleet Boston merger, yet they have had less success integrating with investment and insurance companies. Many banks have expanded into investment banking, but have found it hard to package it with their banking services, without resorting to questionable tie-ins which caused scandals at Smith Barney.
GLBA also did not remove the restrictions on banks placed by the Bank Holding Company Act of 1956 which prevented financial institutions from owning non-financial corporations. It conversely prohibits corporations outside of the banking or finance industry from entering retail and/or commercial banking. Many assume Wal-Mart's desire to convert its industrial bank to a commercial/retail bank ultimately drove the banking industry to back the GLBA restrictions.
Some restrictions remain to provide some amount of separation between the investment and commercial banking operations of a company. For example, licensed bankers must have separate business cards, e.g., \"Personal Banker, Wells Fargo Bank\" and \"Investment Consultant, Wells Fargo Private Client Services\". Much of the debate about financial privacy is specifically centered around allowing or preventing the banking, brokerage, and insurances divisions of a company from working together.
GLBA defines financial institutions as: \"companies that offer financial products or services to individuals, like loans, financial or investment advice, or insurance\". The Federal Trade Commission (FTC) has jurisdiction over financial institutions similar to, and including, these:
The Safeguards Rule implements data security requirements from the GLBA and requires financial institutions to develop a written information security plan that describes how the company is prepared for, and plans to continue to protect its clients' nonpublic personal information. The Safeguards Rule applies to information of any consumer's past or present regarding the financial institution's products or services. The written plan must include:
According to a 2009 policy report from the Cato Institute authored by one of the institute's directors, Mark A. Calabria, critics of the legislation feared that, with the allowance for mergers between investment and commercial banks, GLBA allowed the newly-merged banks to take on riskier investments while at the same time removing any requirements to maintain enough equity, exposing the assets of its banking customers.[non-primary source needed] Calabria claimed that, prior to the passage of GLBA in 1999, investment banks were already capable of holding and trading the very financial assets claimed to be the cause of the mortgage crisis, and were also already able to keep their books as they had. He concluded that greater access to investment capital as many investment banks went public on the market explains the shift in their holdings to trading portfolios. Calabria noted that after GLBA passed, most investment banks did not merge with depository commercial banks, and that in fact, the few banks that did merge weathered the crisis better than those that did not.
Financial inclusion is a cornerstone of development, and since 2011, the Global Findex Database has been the definitive source of data on global access to financial services from payments to savings and borrowing. The 2021 edition, based on nationally representative surveys of about 128,000 adults in 123 economies during the COVID-19 pandemic, contains updated indicators on access to and use of formal and informal financial services and digital payments, and offers insights into the behaviors that enable financial resilience. The data also identify gaps in access to and usage of financial services by women and poor adults.
At the New York Fed, our mission is to make the U.S. economy stronger and the financial system more stable for all segments of society. We do this by executing monetary policy, providing financial services, supervising banks and conducting research and providing expertise on issues that impact the nation and communities we serve.
The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
Bank of America\" is the marketing name for the global banking and global markets business of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (\"Investment Banking Affiliates\"), including, in the United States, BofA Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. 153554b96e