The recent rise in bank protabilityto near pre-crisis levels may be awelcome development or the nancialindustry, but some other key measuresshould give bankers good cause to becircumspect about the news. Industrycapacity remains too high. Regulatoryrequirements continue to drive upcosts. And return on equity (ROE)remains markedly and stubbornlybelow the industry’s aspirational15 percent level.In short, banking costs too much, andthere’s too much o it to go around.Today banks ace a structural issue osurplus capacity, which the extensivemergers and headcount reductions orecent years have not resolved. It’sestimated that one o the top eightbanks could be taken entirely out othe equation, yet still leave enoughcapacity between the other seven tomatch industry demand.Years o super-normal prots prior tothe crisis and continuing central bankliquidity injections may have maskedthe depth o the problem to this point,but the industry now truly aces atipping point: It must transormundamentally to eliminate entrenchedoperational ineciencies, battle agrowing cast o competitors andrevive bank returns. Capco believes“industrialization” o the nancialservices industry oers the key toaddressing these challenges. As detailed in the Capco white paper“The Industrialization Realization,”industrialization involves ully rethinkingwhy activities exist and developinga deep understanding o all theircomponent elements. This discoveryequips banks to then pursue realeciency gains by deploying innovativeprocesses using all the tools andpartnering models now available.
Change, at what cost?
The case for industrializing businessand technology change
By Mark Reeves, Partner and Global Capital Markets Leader, Capco, and David Oxenstierna, Partner, Capco
The industrynow truly acesa tipping point:It must transormundamentallyto eliminateentrenchedoperationalineciencies,battle a growingcast o competitorsand revivebank returns.