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What 2015 holds for banking

Sageworks
February 5, 2015
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The IBM Institute for Business Value released its 2015 report, “The paradox of Banking”, which analyzes the existing market and makes predictions about how the landscape will evolve, what will make banks succeed or fail and how institutions can use the market trends to their advantage.

While the report recognizes that customer demands and competition from non-traditional banks will shape banking’s future, the report also recognizes that regulatory expectations and scrutiny will continue to increase, for both traditional community banks and non-bank entities that try to enter banking.

Cost of Compliance, source: The paradox of Banking 2015, IBM

The report cites globalization and the need for increased transparency as primary drivers in the heightened expectations.

The IBM report recommends for institutions to invest in enterprise-wide compliance programs or solutions, and it purports that leading banks will use these investments to improve bank operations – not just comply.

For example, as banks and credit unions expand into stress testing, they use those newly acquired technologies and the information gained to inform and enhance the credit policies of the institution, avoiding high-risk profiles and concentrations.

Similarly, if the institution were to invest in an allowance calculation solution as a means for satisfying examiner requests or questions around the reserve, the management team would also use the software as a planning tool for more accurately forecasted reserve provision expenses and impact to capital.

The report also projected that institutions will pursue increased specialization, focusing on critical bank functions while outsourcing other functions to specialized software providers or consultants. The challenge that will come with specialization is added risk that comes with external providers.

Already, many banks and credit unions are being asked to prepare a rigid and robust vendor due diligence process meant to ferret out potential organizational, financial, or information security risks. As institutions take on more outside contractors for specialized compliance needs or efficiencies, the due diligence process will become a critical step that must standardized and documented.

About the Author

Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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