After years of relentless focus on costs, settlements and regulations, the future of banking is looking brighter, agreed panellists in a session at the World Economic Forum Annual Meeting. On the regulatory front, the majority predicted a significant paring-back of regulatory regimes such as Dodd-Frank, the Volcker rule and Basel IV.
The low interest rate environment over the past seven years has been tough for the banking sector, said Brian T. Moynihan, Chairman of the Board and Chief Executive Officer, Bank of America Corporation, USA. “Business confidence is reviving and the US economy will grow 2% this year,” he added. This, along with efficiencies gained from digital transformation within banks, will underwrite long-term recovery among US banks, he said.
António Horta-Osório, Chief Executive of Lloyds Banking Group in the United Kingdom, likened the banking system to the vascular system in the human body. “You don’t have strong economies in the long term if you don’t have a strong banking system,” he said. He also touched on the implications of Brexit, pointing out that, despite uncertainties, London continues to have structural benefits including time zone, attraction of global talent and the necessary infrastructure.
“The focus on regulations has perhaps been at the expense of growth,” said Mary Callahan Erdoes, Chief Executive Officer, Asset Management, JPMorgan Chase & Co., USA. She pointed to the fact that JPMorgan spends around $9 billion on internal controls and needs to deal with 25,000 line items and five different regulators just to fulfil their Dodd-Frank obligations. There is some optimism that this burden will lighten under the Trump administration, which is seen as being more business friendly. “Currently, less than 10% of cabinet positions have business experience; this will rise to more than 50% in the new administration,” she added.
Europe needs more structural reforms to become competitive, said Sergio P. Ermotti, Group Chief Executive Officer of UBS, Switzerland. Monetary policy was a necessary tool to escape the crisis but it has exhausted its effectiveness. “It’s time to normalize,” he added. He also called for a more constructive approach by regulators to international capital markets. Ermotti outlined the need for greater industry cooperation in dealing with complex back-office functions. “The notion of infrastructure-sharing in the banking sector is not new and needs to be embraced again,” he said.
We are looking forward to a more constructive dialogue between the United States and Russia, said Andrey L. Kostin, President and Chairman of the VTB Bank Management Board, VTB Bank, Russian Federation. “Mr Trump should remove sanctions from the leading Russian banks,” he suggested. This will help support privatization and improve efficiency in the Russian banking sector.
The 47th World Economic Forum Annual Meeting is taking place on 17-20 January in Davos-Klosters, Switzerland, under the theme Responsive and Responsible Leadership. More than 3,000 participants from nearly 100 countries will participate in over 400 sessions.