Building investment bank culture to drive competitive advantage

Focusing on investment bank culture and technology

Rethinking investment banking strategies to focus on culture change and technology.



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“Investment banks must redefine their culture to help drive strategy – as a great strategy is only great if the culture accepts it.” 

Financial institutions are reviewing their post-crisis investment bank strategy and realizing that investment banking culture, conduct and technology are vital. They are reconsidering the strategic role their wholesale bank plays in a diversified financial institution model, the right mix for the organization, the impact of new regulatory requirements, the cost of capital, and the ROE needs of the institution.

While some investment banks continue to hunker down post-crisis, opportunities for competitive advantage are emerging for those able to leap forward in culture and technology. 

Impact of the financial crisis on investment bank business model

Following a decade of high volumes, volatility and customized complexity, as well as massive innovation and unprecedented profitability, investment banks are left with a lingering hangover: 

  • Optimism in investment banking has waned. 
  • Lower volumes and electronic trading/settlement are the new normal. 

  • Cultural shortcomings are still common.     
  • There is meager investment in back- office improvements. 
  • Many organizations have taken a wait- and-see approach. 

While the flow of new regulations has begun to slow, banks still generally view their future through a ‘post-crisis’ lens. While there is no way to ‘future-proof’ the investment bank business model, there are ways to better prepare for what’s to come. 

Focusing on capital markets culture

As big banks focus on implementing new regulations, a new back- and middle-office model and how technology can transform their business, there seems to be a shift to a clearer client focus (putting the client’s needs first).

This is a good time for banks to fix their culture issues, to drive their business forward and differentiate them from competitors. Not only will bank conduct and culture improve on past performance, they also need new approaches to customer-centricity. Redefining culture will help drive strategy, since it’s only with an aligned culture that strategy can be executed. 

Evolving investment bank technology

Banks must embrace new technology to advance the quality of regulatory compliance, increase transparency, reduce costs, and improve overall profitability. 

In our view, banks should focus as much attention as possible on technology to bring the sector into the 21st century and generate more sustainable revenue. IT investment should focus on middle- and back-office functions and architectures to streamline duplicative, siloed and inefficient operations. 

It is essential for capital markets institutions to upgrade technologies – in-house or through joint ventures, strategic alliances or acquisitions of ‘permitted’ technology firms that are closely aligned with banking – to make valuable operational and financial decisions associated with:

• real-time analysis for risk and pricing purposes

  • portfolio-composition decisions
  • executing trades that take advantage of fast movements in markets around the world
  • maintaining and reporting on compliance with regulations

• constructing optimized cost processes and structures

enabling and/or monitoring established  internal governance discipline
enhancing cyber security capabilities. 

Deciding on capital markets strategy

Although large investment and wholesale banks generally take a cautious approach to their strategy, they should not roll out a new strategy unless they roll out a new culture first, and be sure to enable it with the appropriate technology. 

For now, banks must decide whether to hunker down or try to move ahead. By examining the context on current marketplace thinking, banks can equip themselves with the tools and insights required to make more strategic and forward-thinking decisions.

Frontiers in Finance

The focus of the latest issue of Frontiers in Finance is on having the courage to change.

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