A Better Dialogue for More Informed Choices
By Ignace R. Combes - Chairman of the Vlerick Centre for Financial Services
We all know that financial institutions are facing challenging times. Short term and long term choices, tactical and strategic choices are and continue to need to be made and these are not obvious choices given often difficult to reconcile requirements from regulators, clients, markets, investors and authorities. The list of conflicting requirements is long and financial institutions need to navigate through rough and troubled waters within a rather hostile environment given the impact of the crisis.
- Banks are restoring profitability now through deleveraging, returning to core activities and implementing cost management measures. However, new business models need to be explored and adopted at the same time to ensure long term sustainable competitiveness.
- Capital and liquidity requirements put pressure on return on investment but new capital will be difficult to source if only utility returns can be given within a very conservative risk management framework.
- International banks having become because of necessity national banks are now increasingly competing with smaller banks in some markets such as retail markets, which do also carry financial risks as currently demonstrated in Spain. Business models will need to change, innovation will become even more important to differentiate particularly through technology in differentiating customer interaction.
- Credit extension to the industry is facing challenges because of better in-calculation of risk in the pricing, increased capital requirements affecting negatively certain types of financing such as long term credits, banks often having lower credit ratings than corporations going directly to the capital markets, international banks having become “national” banks being less well equipped to support the international expansion of export oriented corporations. Other and maybe new financing channels may be need to be pursued to changing market conditions.
- Solvency II (and particularly its risk based approach) and other short term requirements affecting the insurance industry will have a profound impact on the industry. Business models will need to be adapted, products offered will need to be revisited within a currently low interest rate environment affecting long term payout capacity. On the other hand, insurances can be good candidates for long term financing given their business profile assuming of course an up-to-date risk management framework.
- Given the increased sovereign risk in Europe and the need for countries to reduce deficits and achieve balanced budgets, the private sector either directly or through their employer will need to take more responsibility. Pillar 2 and pillar 3 of pension funds will gain in importance providing challenges and opportunities to asset managers. However, given the increased macro-economic impact on return on assets, asset management techniques will need to evolve.
“Dialogue” is an important part of the overall program of the Vlerick Financial Services Centre offering to the financial industry specialized MBA and executive education programs, in-house research and education, and project based industry specific research. The publication is our contribution to help the dialogue within the financial industry at large not only financial institutions but also regulators and authorities.
Relevant research and opinion pieces can help in providing objectivity and credibility and in putting forward alternative solutions to issues and challenges the industry is facing. Articles from financial experts and opinion makers will help the debate in identifying and resolving issues and challenges. The combination of views from academicians and practitioners in a single publication will ensure market relevance and interaction between the scientific approach and pragmatism. It is the objective to share, to inform, to challenge, to cross-leverage and to contribute to helping making better choices, to finding sustainable solutions and as a result to come out better and stronger from the crisis. Crisis and choices are closely linked as the etymology of the word “crisis” demonstrates. In Ancient Greek, it means “krinein” or “to choose/to decide”.
We plan to issue three releases every year.
We wish you an interesting reading.
Comments and feedback are very welcome.