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2012: McKinsey say banks need to reinvent themselves

Stumbled across an interesting report from McKinsey that says business as usual is not an option for American banks.  

They'll go out of business if they don't change their business models, as average Return on Equity will sink from 11% to 7% by 2015, whilst the cost of equity will reach 9%. 

That means banks will be running two points behind their costs and will effectively go out of business if they don't change.

What do they need to change?

The branch-based business model; the payments model; the mortgages model; and FX and OTC trading model.

This is all due to a massive reduction in consumer debt, the increased capital requirements of Basel III and the need to respond to Dodd-Frank legislative impact on fees and trading (Durbin and Volcker).

An interesting read.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • The biggest stumbling block in adopting the Basel III agreement relates to greater demands on capital ratios. The banks claim that these conditions will adversely affect profit margins. Banks will have to hold much more capital to prevent a repeat of the financial crisis.