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8 Changes Banking Can Expect in 2013


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Bank Director asked industry experts to answer the question: What will be the biggest change in banking in 2013? Here are their responses.

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8 Changes Banking Can Expect in 2013

  1. 1. Banks will cutbranches, infrastructureThe industry is overcapitalized andhas excess capacity. In order to getreturns, you will see banks rationalizetheir infrastructure, whether it isconsolidating or closing branches, orexiting markets. The outlook is marginpressure with low interest rates.Banks can’t really control that butthey can control how many branchesthey operate. —Peyton Green, senior research analyst, Sterne Agee & Leach
  2. 2. There will be more bankopen platformsA few years ago payment companies (e.g.PayPal, MasterCard) started opening uptheir networks to independent [software]developers. Now, banks are alsobeginning to embrace the open platformidea. Credit Agricole, a large bank inFrance, opened an online appstore, where its customers can downloadfinancial management apps developed bythe bank and third parties, and proposenew ideas. At Celent, we believe thatbank open platforms and co-creation withcustomers will be important sources ofinnovation going forward. —Zilvinas Bareisis, senior analyst, Celent
  3. 3. M&A will surpass regulatoryconcerns for directors andofficers insuranceEver since the credit crisis, the singlelargest directors and officersinsurance claims driver from both afrequency and severity standpoint hasbeen suits and investigations from theFDIC or other regulatory bodies.From 2008 to 2010, mergers andacquisitions was the third largestmeasurable category. In 2013, weanticipate M&A related claims willsurpass regulatory claims as the singlelargest claims driver. —Dennis Gustafson, senior vice president, AH&T Insurance
  4. 4. Globalization will slow;new business models willemerge2013 will bring an interruption ofsecular trends likely to startle many—particularly the extent consolidationand globalization slow or evenunravel. Look for: Unfreezing ofsecuritization markets, withsignificant off-balance-sheet fundingto optimize bank capital. Likely tohave high impact: Increaseddifferentiation, and emergence ofmeaningful new business models—perhaps even serving the unbanked (1in 12) and underbanked (1 in 5) U.S.households. —Ranu Dayal, senior partner, The Boston Consulting Group
  5. 5. M&A will pick upThe long-anticipated increase in M&Aactivity will finally occur.Unfortunately, the increase won’tcome from voluntary transactions.Rather, it will come as indebtedholding companies are forced to selltheir bank subsidiaries as they reachthe end of a 20-quarter trustpreferred deferral period [many banksdeferred dividends on trust preferredsecurities starting during the crisis in2008], or [as banks] are unable torepay debt secured by the stock oftheir subsidiary banks. —Joel Rappoport, partner, Kilpatrick Townsend & Stockton LLP
  6. 6. Boards will pay higherbase salaries and less long-term stockCompeting pressure from bank regulatorsto eliminate risk and shareholderdemands for pay/performance alignmentwill ultimately drive changes in executivecompensation programs and practicesover the next few years. For example, theFederal Reserve is pressuring the largestfinancial companies to significantly reduceupside in long-term plans. Stock optionsare out of favor with both regulators andInstitutional Shareholder Services. Theimpact of these new perspectives andrules will result in revisions to the pay mix(e.g. increased salaries and/or incentivetargets, greater focus on restricted stock). —Susan O’Donnell, managing director, Pearl Meyer & Partners
  7. 7. There will be higherstandards in 2013Heightened standards is the bywordfor 2013—that’s the direction comingfrom the global standard setters, andbanks of all sizes will do well to payattention. Visible independence ofthought is more critical than ever –directors have to provide a crediblechallenge to the bank executivemanagement team. It also meansbeing proactive in setting the boardagenda. Board reporting has toevolve beyond data dumps toclear, concise and timely information. —Kathryn Dick, managing director, Promontory Financial Group
  8. 8. Banks will closebranches, invest inelectronic banking andconsolidateThe significant deterioration in brancheconomics will reshape the landscapeof banking in 2013. We estimate thatthe current level of interest rates andregulatory reductions in deposit feeshas made a significant number ofbranches unprofitable. As aresult, bank managers will acceleratethe closing of branches, increaseinvestments in electronic bankingplatforms and consolidate smallerbanks. —Fred Cannon, director of research, Keefe, Bruyette & Woods