Over breakfast this morning my 14-year old son asked if he could have his own bank account and it really got me thinking as he also asked if his money would be safe! With the amount he has to deposit he is more than covered by the UK Bank Deposit Protection Scheme. Both my wife and I use different banks for different reasons so I offered him some options. My son responded with yet another question of “why”. Here I was being quizzed by a 14-year old on the virtues of the banking system.

As someone who has spent more than twenty years working in the financial services industry this got me thinking what lessons have we learned and what is the outlook for the remainder of 2010 and beyond?

It is clear that banks across the globe are taking different approaches to growth and profitability and the 2010 outlook is remarkably different from bank to bank and country to country.  The differences reflect the unique set of conditions each bank has faced during the financial crisis, and banks’ unique opportunities in emerging from the downturn as highlighted in a recent survey of banks in South-East Asia, conducted by SunGard and IDC Financial Insights.

Banks across the globe recognize that there are still-prevalent threats to their business and this shows up in their greater focus on risk management. Here, the risk mandate is to ensure the bank’s board adequately mitigates and manages the vulnerabilities of their institution. The crisis was an all-too-real demonstration of how a comprehensive failure of risk management can wreak havoc to an entire industry.

Moving forward, strategic IT priorities will shift toward solutions that will enable banks to quickly fill in gaps in their risk management capabilities as well as take on risk management best practices learned from the recent crisis. The realization for 2009 was that global enterprise risk management failed in many ways, and that to ensure survival, financial institutions have to fundamentally address all types of risk.

The financial crisis has led to the realization that banks need a prudent, long-term balanced view of their business.  As the global economic recovery begins, some banks have started to refocus their core business principles.  There is the recognition amongst some that their sustainability is provided by their customers, that their business operations rely on their staff expertise and that their capital represents their ability to survive into the future.  Those that haven’t come to these realizations need to quickly, or one has to question their viability going forward, given the copious amount of new and amended legislation that is being debated across the globe.

So rather than answering my son’s question the way I did, which was ‘go ask your mother’, perhaps I should have responded with ‘find a bank that is a prudent, well-managed institution’.  Probably a little too deep for a 14 year old and certainly one that would spawn a whole raft of supplementary questions such as; ‘what is a bank anyway?’ and then ‘what do you mean by well managed?’
 
If you were me how would you have responded? 

Would it be something similar to the following?

“Son at a high level, a bank should engage in the prudent management of its assets.  This means that it needs to balance the interests of its owners and other key stakeholders both now and into the future.  Assets need to be deployed efficiently in a way that is aimed to maximize current profits.  However, they also need to be applied in a way which seems likely to produce future revenue streams and opportunities, balanced against the likelihood of future losses resulting from unforeseen events.  In other words, risk needs to be taken into account – and the longer the time period that the bank uses for its business planning, the more important risk management and mitigation techniques become.”

Or again would it have been ‘go ask your mother’?

Perhaps I will try the first and let you know how I get on.