The banking sector showed its most vulnerable face during the 2008 recession. Strict regulations and measures enacted soon after the crisis has been keeping banks on their toes. However, it has not been an easy ride for the sector. Are regulations enough to keep banks afloat? Will they survive another crisis?
Experts worldwide are embroiled in discussions over the state of banks. Questions are being asked about the viability of traditional, current, or futuristic models of banking. Recently, I attended the ‘The Future of Banking’ event, organized by the Young Fabians Society at Houses of Parliament in London. Speakers Professor Anastasia Nesvetailova and Marloes Nicholls discussed whether the sector has learnt the lessons from the 2008 crash and how the future could look. In this blog post, I am summarizing the most important takeaways from the event.
In her talk, Professor Anastasia Nesvetailova1 defined three visions for the developments in the banking sector.
- Nostalgic vision: The traditional vision as it was common in the 1950s is characterized by higher capital controls and charges – eventually penalizing people. At times, instead of re-inventing the wheel, the best solution could be the traditional way of doing things. But debt and risk are inevitable in today’s economy, the traditional model does not appear to be a sustainable one.
- Continual vision: This vision works with regulation, which tends to turn into overregulation. We have seen how overregulation has pushed many banking activities into the shadow banking system – a practice popular in Europe. What we need is a more pragmatic and transparent approach.
- Evolutionary vision: Technology is the key to the evolutionary vision. The banking sector, just like many other industries, is switching to a model that involves a partnership between mind+machine. However, the success of this model is highly dependent on how we work with new data generated by the various tools and technologies used today. The delayed response time of decision makers to signs of future crisis is another deterrent. The complexity of our environment demands that policymakers work closely with the sector to prepare for the next financial crisis, and develop tools and solutions to deal with it.
Speaker Marloes Nicholls2 talked about the main banking tensions that affect banks in the UK. They are struggling with diversity and competition, long-term needs, low financial engagement, and a need for public policy, among others. The country’s low financial literacy is not helping the situation. Marloes recommends three solutions to remedy the UK banking sector: a) Serving the real economy and working closely with policymakers, b) Banking for the long-term delivering long-term value, and c) Respecting customers – creating a public process involving customers, civil sources, and regulators. The most important aspect remains that technology be applied effectively for the enhancement of the sector.
Given the fact that technology does what it does – it evolves – banks inevitably will need to follow suit. The amount of continuous transformation that is required in the banking industry is truly herculean. Embracing innovation and new technologies is the only and desired hygiene factor for banks.
1 Anastasia Nesvetailova – Professor, Labour Party’s Economic Advisory Committee member and Director of City’s Political Economy Research Centre.
2 Marloes Nicholls – Programme Manager, Finance, at Meteos; Director of the Money Comms Lab; and Project Manager and lead researcher at BankingFutures.