In 2012, the Fed tested the banks’ ability to withstand a crisis, similar to the one from five years ago, that caused unemployment to rise to 13%, a 50% fall in share prices, and a 21% drop in housing prices. Some of the top banks once again failed to show they have enough capital to survive another serious downturn. A Bloomberg article yesterday discussed how Fed regulators and the Dodd-Frank Act have been historically at odds.
Even after the past failure, banks were either too exposed outside the U.S. or were planning to hand too much money back to investors. This means, they lack a “single view” of global enterprise-wide risk exposure, with various internal silos only concerned with their own priorities.
A single snapshot of risk
In a mandate from a global governing committee, top banks have been given three years to build up a single view of all their risk to help make the wider financial system more resilient. These global banks have many branches and subsidiaries, complicating the creation of a single snapshot of risk. They will have to get on top of this initiative as a temporary stopgap, but what about future updates, and/or further changes in regulation?
Banks need to assess risk whether a regulation or a law mandates it or not. The end-game is what efficient compliance enables – long-term strategic and operational improvements, not compliance for its own sake. [Read more...]