A brave new world: the transformation of the ... - Banking Review

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Vikram Pandit, CEO of Citigroup, is concerned that those in most financial need are not shut out of the system and challenges bankers and regulators to work ...
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ANALYTICS Build on your future.

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ANALYTICS Build on your future.

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8(.$*,69.3*( For over 35 years, SAS has partnered with some of the most successful organisations in transforming the way the world works: from revolutionary medical break-through to innovations which ensure the right products reach you when and where you need them. Many of these organisations are from the financial services world, one that has witnessed dramatic highs and low over the years as the global economy changes. The evolution of the consumer society has taken us from a comparatively simplistic, ‘low-tech’ world of a few of decades ago, to today’s complex and constantly changing one. In response to change, businesses have had to adopt a program of continuous modernisation and adapt to change rapidly to survive. Customer choice and fierce competition has sealed the fate of those slow to respond. In the 21st Century, data is the lifeblood of an organisation, and this is no more the case than for banks. With the deployment of new technologies, banks trade across global markets, whilst customers access financial services through smart-phones and other mobile devices. This unbounded exchange has unleashed an unprecedented volume of data across the internet and into financial systems.

Recent strategic investments by banks have mainly concentrated on infrastructure and operational environments but this is no longer the priority. Banks need to understand their customers more than ever. Insight and foresight are the keys to better serving each individual customer. That is the expectation, to be treated as an individual! Banks are on a path to realising this potential both through the modernisation of their decision-making process and ability to harness the sheer volume of data which continues to grow exponentially. But there are still challenges ahead. At SAS, our leading Analytics gives organisations such as banks, the power to know their customers, their markets, their risk exposures and ultimately determine their success. We would like to share with you our experiences and those of other thought leaders as the banking industry looks to embed itself within the digital age, with all the possibilities and perils that it brings. We will continue to help transform the way the world works through Analytics.

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;*(.'(.0 BRAVE NEW WORLD: As the banking industry enters a period of profound and probably difficult change, not only do the world’s banks face a tidal wave of post-crisis regulatory initiatives and restructuring, they also face widespread loss of public confidence. But new pressures bring new ideas and new opportunities.

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8*9+$:*&2;'$ The @-(5"J2-$P-"5-;;;-:, the out-going governor of Brazil’s central bank, gives a detailed analysis of factors underlying the country’s economic resilience during the crisis, including and overview of Brazil’s generally conservative approach to bank regulation and supervision.

RUNNING AN ISLAMIC BANK: With compound annual asset growth of 23.5% over the past five years, Islamic finance is finally getting the attention it deserves. Banks in geographies with Muslim populations must now consider adding sharia-compliant services or partnering with an Islamic institution.

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Further reading you may also be interested in

N5O$62(9('&$R&H, advisor to the Central Bank of Bahrain, takes an honest look at some of the significant challenges for Islamic banks, including lack of standardised products, insufficient price data, a lack of liquid instruments and transparency.

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SHIFTING GLOBAL OPPORTUNITIES: With little end in sight for economic troubles in developed countries, hopes for sustained global economic growth are being pinned on Brazil, Russia, India and China, the so-called BRIC countries. Global banking institutions have known for a long time that economic influence was shifting in favour of the BRIC countries but over the next decade the effects of this shift will become even more apparent in the domestic markets of developed countries.

N5O$%-595'$QH&(:, chief economist and group head of global research at Standard Chartered Bank, argues that the global economy has entered a super-cycle of high growth. His analysis includes breathtaking illustrations of the full potential and implications of China’s emerging economic might.

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Some of that is understandable belt-tightening following the financial crisis, but some is the result of new rules that make serving the less affluent less economically viable. We can expect a further contraction of credit as the system adjusts to the new reality. As always, the least affluent will feel this credit pinch the most – indeed, they already are.

While these concerns are serious, there is no doubt that they are also surmountable. The financial services industry and its regulators must work together to ensure all sides understand the implications of our collective actions. Regulations at both the national and international levels must strike the right balance between systemic stability and access to credit for those who need it most. This collaboration can bring the benefits of the global financial system to more people than ever before.

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new model with lower-cost structures that make it economically viable for banks to serve the less affluent fairly. Innovation and technology will be key, enabling us to provide the same services at far lower costs. Nations considering new consumer protections would do well to take the lessons of the US experience to heart, and consider the full impact of any new rules.

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A&'"#6&'7-%(#1'0-%($&'0#$/-#*)23%$&'4-#38#6%3&0-'*'+#*'4.1(*3'#61$#03# '3$#(--#.-&%#61(*'-((#%&$*3'&.-9 the Communities at Work Fund –at $200m, one of the US’ largest vehicles for connecting private capital with underserved communities. We leveraged Citi’s financing capital and expertise to create a sustainable – and ultimately profitable – social enterprise. The creation of new sustainable business models is a priority for Citi and should be for the entire industry. Banks are profit-making enterprises; strategic philanthropy is important but, on its own, is not enough. For banks to maximise their impact, they need company-wide efforts to deliver for communities through their primary business functions. It is an elementary business principle that underserved markets are often opportunities for profitable growth. Banks know something about finance and development. It is a natural fit for us to put our money, talent, experience and products to work in communities where access to financial services is limited, and to strive to include more people in the financial system.

I74-487-2"276/,-85 In particular, we should put our expertise to work to increase financial literacy. It is impossible to overstate the importance of financial education: in many ways, how people manage their money is more important than how much they have. One contributing factor to the financial

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crisis was that too many people did not understand how best to secure their financial futures. That is a skill that can be learned – and it is vital, no matter how big or small your bank balance. The integration of corporate citizenship into our core business practices has implications far beyond the immediate impact of individual initiatives. It is a powerful tool for cultural change, and influences corporate strategy and operations. Corporations that achieve this synergy attract talent with the right skills and values, reduce risk, increase revenue and of course achieve a positive impact on their reputation – all key ingredients to success that in turn allow us to do even more for our communities. In the future, I believe the companies that succeed will be those that develop a culture that places social responsibility at their core, and that see corporate citizenship not as charity, but as business as usual. At Citi, we are doing just that through our renewed commitment to responsible finance. Creating financial opportunity for everyone is at the core our mission, and we are committed to putting the full force of our people and resources to work to drive financial inclusion. K%.)*H'D'L*";%#'%-'51%26'2725/#%82'&66%52)'&6'M%#%=)&/0C

#$!%&"'&("()$*+ F146/469 #,-./"'/0"(1,23 !4-256789":"'-.7;-674;" "61,D-6714 Not being able to wholly integrate the full cycle of credit management, combined with the failure of market portfolio management to truly understand the performance of the capital available to a bank, has caused bank managers to either aggressively extend credit or to not participate in the market due to a lack of information. Due partly to the limitations of traditional reporting and ‘computational’ technology, banks have only been able to increase their use of analytics within certain silos of product offerings, but have not yet reached the goal of having ‘ondemand’ firm-wide capabilities. The ability to do cross-product scenario, stress-testing and firm-wide analysis of required liquidity for funding

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A high-performance banking technology framework is the answer. Key elements include computing what you need to know today – questions asked today cannot be answered with ‘stale’ information that was computed yesterday. Some historical factors need to be archived and utilised for the back testing of assumptions but a highperformance banking technology solution relies on the ability to combine historical events, allows for the insertion

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#$!%&"'&("()$*+ F146/469 #,-./"'/0"(1,23 !4-256789":"'-.7;-674;" "6,-B3" From the perspective of bank risk executives, anti-fraud programmes are low priority because a lack of positive revenue and losses are built into budget projections. They discount the impact and reputational risk presented by a well-publicised negative experience on a mass scale. They should view anti-fraud strategies as a priority, not because of the monetary losses that are ‘acceptable’ from a balance sheet perspective, but rather because current and potential customers feel vulnerable and exposed. Banks that fail to protect customers will lose them to competitors that grasp the problem and the potential opportunity. Fortunately, the banks themselves hold the most powerful weapon to predict and prevent fraud – data. Banks hold a rich trove of information about customers, transactions, accounts and broader trends and patterns. The effective use and analysis of that data – real time and batched – can identify fraud patterns, anomalies and common data points that reveal associations between fraudulent accounts and group fraud activity. One best practice is to

"37./,97>78-6714" Moving from theory to implementation issues, market participants relied too heavily on recent market experience (during the 1990s and 2000s) to frame their views on risk and to calibrate their models. They concluded incorrectly that the likely need and the resultant cost to adjust their holdings – and to reduce risks in light of shocks and lack of liquidity in the market – were extremely low. They relied almost exclusively on the advantages of diversification across uncorrelated firm activities and concluded that risks were controlled within the isolated portfolios; they

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!94(*)+',5'2'(.0 This selection of articles has been compiled with the kind permission of FT Business from their publications: !"#$%"$&'($)$*)(+$2010 and 2011.

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