Dear,
This week, Mr. Mohamed El-Erian, Chief Economic Advisor at Allianz http://www.allianz.com/, former chief executive officer at Pimco http://www.pimco.com/ and chairman of Barack Obama's Global Development Council published the following article in Bloomberg.
http://www.bloombergview.com/articles/2014-05-30/the-new-paradigm-for-banks
Just the title is clear enough; "The New Paradigm for Banks".
A paradigm change is a big thing, what are the root causes?
Mr. El-Erian names three; weak economy, central bank policies and regulation.
I
can´t agree more. Those of you who have read this community posts in the last 6 years already know what´s my opinion about it.
We´re in the middle of a Systemic Crisis which is driving a major change on the Financial System, from a model based in volume to a model based in efficient Capital Management.
Natural resources scarcity and global debt have reduced the world's potential growth, and this has deep implications for the Financial System.
Three years ago, you could read it here.
http://blogs.sap.com/banking/2011/12/07/its-growth-stupid/
We're in a Fractional Reserve Banking System; a Financial System which only requires a limited amount of capital (around 8-10% of Risk Weighted Assets); or in other words, a highly leveraged Financial System.
Leverage produces a multiplying effect in a growing economy but it´s unsustainable in a non-growing or limited-growing economy.
Governments know this, and as Mr. El-Erian mentions, they come with a two steps proposal:
- Regulation to drive capital management efficiency.
- Central Banks policies to borrow the necessary time to implement the new regulatory framework.
This is not new information, Mr. Jaime Caruana, General Manager of the Bank for International Settlements (Central Bank of the Central Banks) made it very clear one year ago.
http://www.bis.org/speeches/sp130623.htm
Paradigm change of the Financial System is going to happen and it's going to be challenging.
Let´s imagine for a minute that we're sitting at the executive board of a Tier 1 or Tier 2 Bank; as the bank can´t fulfill the increasing capital requirements, the chairman brings a critical request to his team.
What can you offer to improve the bank's capital ratio?
Barclay´s example that we discussed some weeks ago is giving us some answers.
http://sapbank.blogspot.com/2014/05/why-barclays-is-good-example-of.html
- The Chief Financial officer will propose a plan for toxic assets liquidation.
- The Chief human resources officer will come with a headcount reduction.
And the Chief Information Offer will have to bring a proposal for efficient capital management; let´s help him with it.
Efficient Capital Management requires:
- Determining the long term sustainable value of the bank´s portfolio.
- Matching accurately bank´s assets and liabilities by maturity bands.
- Proactive and effective implementation of hedging risk strategies.
- Integrated and multidimensional portfolio stress testing.
And overall, an Integrated and Financial Risk Architecture which offers a holistic vision of all the banks rights and obligations; assets, liabilities and collaterals.
These are the shapes that capital takes; modeling them in an integrated architecture is the basic requirement for building the IT proposal to the paradigm change.
After the crisis, financial institutions will have to live in a very different world of scarce and expensive capital which will make efficient capital management the main priority.
Combining Bank Analyzer Integrated Financial and Risk Architecture with the in-memory capabilities of SAP HANA, makes the foundation of a Capital Optimization model in which I have been working for the last six years, as I described briefly in the post below.
http://blogs.sap.com/banking/2012/02/01/capital-optimization-sap-hana/
Looking forward to bring your opinions.
K. Regards,
Ferran.
This week, Mr. Mohamed El-Erian, Chief Economic Advisor at Allianz http://www.allianz.com/, former chief executive officer at Pimco http://www.pimco.com/ and chairman of Barack Obama's Global Development Council published the following article in Bloomberg.
http://www.bloombergview.com/articles/2014-05-30/the-new-paradigm-for-banks
Just the title is clear enough; "The New Paradigm for Banks".
A paradigm change is a big thing, what are the root causes?
Mr. El-Erian names three; weak economy, central bank policies and regulation.
I
can´t agree more. Those of you who have read this community posts in the last 6 years already know what´s my opinion about it.
We´re in the middle of a Systemic Crisis which is driving a major change on the Financial System, from a model based in volume to a model based in efficient Capital Management.
Natural resources scarcity and global debt have reduced the world's potential growth, and this has deep implications for the Financial System.
Three years ago, you could read it here.
http://blogs.sap.com/banking/2011/12/07/its-growth-stupid/
We're in a Fractional Reserve Banking System; a Financial System which only requires a limited amount of capital (around 8-10% of Risk Weighted Assets); or in other words, a highly leveraged Financial System.
Leverage produces a multiplying effect in a growing economy but it´s unsustainable in a non-growing or limited-growing economy.
Governments know this, and as Mr. El-Erian mentions, they come with a two steps proposal:
- Regulation to drive capital management efficiency.
- Central Banks policies to borrow the necessary time to implement the new regulatory framework.
This is not new information, Mr. Jaime Caruana, General Manager of the Bank for International Settlements (Central Bank of the Central Banks) made it very clear one year ago.
http://www.bis.org/speeches/sp130623.htm
Paradigm change of the Financial System is going to happen and it's going to be challenging.
Let´s imagine for a minute that we're sitting at the executive board of a Tier 1 or Tier 2 Bank; as the bank can´t fulfill the increasing capital requirements, the chairman brings a critical request to his team.
What can you offer to improve the bank's capital ratio?
Barclay´s example that we discussed some weeks ago is giving us some answers.
http://sapbank.blogspot.com/2014/05/why-barclays-is-good-example-of.html
- The Chief Financial officer will propose a plan for toxic assets liquidation.
- The Chief human resources officer will come with a headcount reduction.
And the Chief Information Offer will have to bring a proposal for efficient capital management; let´s help him with it.
Efficient Capital Management requires:
- Determining the long term sustainable value of the bank´s portfolio.
- Matching accurately bank´s assets and liabilities by maturity bands.
- Proactive and effective implementation of hedging risk strategies.
- Integrated and multidimensional portfolio stress testing.
And overall, an Integrated and Financial Risk Architecture which offers a holistic vision of all the banks rights and obligations; assets, liabilities and collaterals.
These are the shapes that capital takes; modeling them in an integrated architecture is the basic requirement for building the IT proposal to the paradigm change.
After the crisis, financial institutions will have to live in a very different world of scarce and expensive capital which will make efficient capital management the main priority.
Combining Bank Analyzer Integrated Financial and Risk Architecture with the in-memory capabilities of SAP HANA, makes the foundation of a Capital Optimization model in which I have been working for the last six years, as I described briefly in the post below.
http://blogs.sap.com/banking/2012/02/01/capital-optimization-sap-hana/
Looking forward to bring your opinions.
K. Regards,
Ferran.
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