“If we get this right we could steer the banking sector back on track. This exercise has the capacity to establish the credibility of the European Central Bank and to restore faith in European banks. It could be a wake-up call for the industry, forcing banks to take action to reassess their strategies."
“The review is a significant undertaking for banks, which are arguably facing the largest buy-side due diligence programme in history. It is inevitable that the asset quality review will throw up a number of surprises with failures not just limited to the usual suspects.”
In addition to the asset quality review, Bill Michael believes the universal banking model will continue to be challenged over the next 12 months and banks will become more localised.
“The sector is heading toward a new place where universal banking needs to be radically reshaped. Retail and investment banking are not inherently compatible and this will accelerate the restructure of this sector."
“Governments are protecting banks like national defence forces and, accordingly, a philosophy of ‘countries coming first’ has taken hold. As a result banks are becoming increasingly localised and they will focus more on understanding the needs of their customers. We will continue to see major divestments with banks exiting geographies and products.”
Bill Michael also predicts the conduct agenda will continue to be a priority but warns that it is time to move on and adopt a more forward-looking approach or customers will suffer.
“UK retail banking is still being dominated by ‘back-book reviews’ of mis-selling. While the goal of these reviews is noble, there is no end in sight. We are running the risk of harming the very people we aim to protect – our customers. For example, customers already have access to fewer pensions and investment products as a direct result."
“One of the final pieces of the European regulatory puzzle is for the European Commission to implement their conduct agenda. It is important they observe the lessons learnt in the UK to maximise the results for the customer."
“All parties - including the EU Commission, national governments and regulators - must start focusing on today’s reality rather than concentrating on remedying all the mistakes of the past. As is often said, you deal with what is reality or you can be sure reality is going to deal with you."
“Banking is suffering from an identity crisis. Banks can’t be everything to all people. We cannot impose strict capital requirements and leverage ratios and simultaneously expect greater levels of lending. The challenge of striking the right balance between regulating for a safer banking system that meets customers’ needs, while also supporting broader economic growth continues.”
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KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.