Episode 56: Banking and capital markets challenges and trends for 2024
Mar 14, 2024
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Paul Garbutt, Partner, and Ed Allen, Managing Director of BRS, discuss challenges in banking & capital markets for 2024. Topics include volatile interest rates, AI, regulation, macroeconomic uncertainties, adapting processes, governance, agility, geopolitical events, interest rate fluctuations, return on equity, capital management, wealth offerings, asset management, non-financial risks, geopolitical factors, sustainability, ESG, data, regulatory inconsistencies, advanced technologies, financial reforms, AI in banking sector, market infrastructure, automation, generative AI, integration challenges, and senior management's role in adopting AI.
Banking and capital markets need to prepare for macroeconomic uncertainties and focus on cost control and agility.
Volatility in interest rates and inflation poses challenges for financial institutions, driving the need for strategic responses.
Risk management frameworks are evolving to focus on non-financial risks like IT challenges and efficiency using technologies like AI.
Technological advancements such as AI integration bring efficiency and challenges, reshaping market operations and risk management strategies.
Deep dives
Current Economic Trends Impacting Strategic Decisions in Banking and Capital Markets
The uncertainty in macroeconomic developments is driving strategic decisions in banking and capital markets. Clients are preparing for potential increased provisioning levels and economic downturns. While lending to UK PLC remains a priority, there is a focus on cost control, return on equity, and capital management. To navigate uncertainties, banks are advised to focus on capital-light business segments like wealth offerings and asset management.
Impact of Interest Rates and Inflation on Financial Institutions
Volatility in interest rates and inflation is a key concern for financial institutions. The expectation of a reduction in inflation is linked to various macroeconomic factors, but net interest income faces increasing pressure. Scrutiny over deposit rates and competition for client returns is evident, while global strategies diverge, offering unique opportunities to banking clients globally.
Evolution of Risk Management in Financial Institutions
Risk management frameworks are adapting to focus more on non-financial risks and IT infrastructure challenges. Investors, regulators, and customers emphasize the importance of understanding and measuring non-financial risks like operational and strategic factors. The emphasis on data accuracy and efficiency leads to technological solutions like AI integration, particularly in enhancing customer experiences and optimizing data processing.
Technological Developments Shaping Future Banking and Capital Markets
Technological advancements, including AI integration, bring efficiency and challenges to banking and capital markets. From generative AI impacting customer interactions to electronic trading expansions, AI transforms market operations. Data analytics tools like GPT-3 revolutionize analytical capabilities, but the balance of technological benefits and regulatory control remains a key challenge for market participants and regulators.
Adapting Strategies to Sustainable Expectations and ESG Practices
Financial institutions are adapting strategies to meet changing societal expectations around sustainability and ESG practices. The focus shifts towards leveraging data for ESG factors and sustainable investments. Banks are exploring innovative data-driven solutions to incorporate ESG considerations into credit decision-making, offering potential advantages in asset valuation and risk management.
Future Outlook on Risk Management and Technological Advancements
The future outlook emphasizes a continuing evolution in risk management practices and technological advancements. AI tools enhance efficiency and data accuracy, with a focus on integrating legacy systems and optimizing data processing. The governance frameworks around AI implementation and regulatory controls play a crucial role in ensuring effective risk management and staying ahead of market changes.
Podcast Conclusion and Forward-Looking Insights
The podcast discussion highlights the potential paradigm shift in the financial industry driven by technological advancements like AI and data analytics. Collaboration between senior management, regulators, and market participants is key to leveraging AI for efficiency while ensuring regulatory compliance. The forward-looking discussion underscores the dynamic nature of banking and capital markets, signaling an era of innovation and transformative change.
Volatile interest rates, AI, and technology, regulation, and macroeconomic uncertainties are just some of the challenges the banking and capital markets will continue to face this year. The sector will need to ensure they have the correct processes, governance, and agility to adapt effectively.
In our latest podcast, Head of Financial Services, Alex Ellerton is joined by Paul Garbutt, Partner, Head of Banking Advisory, and Ed Allen, Managing Director of BRS, to explore the key themes for the sector in 2024.
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