Envisioning the Future of Banking: AI and Regulatory Challenges

In the coming decade, the future of banking will be significantly shaped by advancements in generative AI and the ongoing evolution of regulatory frameworks. Banks will invest in developing and implementing AI technologies across multiple domains, from fraud detection to client engagement, enabling a more agile approach to innovation. Major functions of financial institutions will continue to revolve around payments, capital formation, and risk transfer, with AI streamlining and enhancing efficiency at each stage of these processes. The capacity to analyze payment flows and identify origination opportunities will empower banks to anticipate client needs and optimize pricing strategies. The natural evolution of markets, particularly in trading, will see electronic and data-driven strategies play an increasingly dominant role, while human involvement will shift towards negotiation and structuring informed by data insights. Regulatory changes, particularly concerning funding and liquidity management under Basel III, will impose stricter measures that could limit banks' ability to exploit traditional maturity transformation. As regulators express growing concerns about the handling of deposits and loans, banks will navigate an environment of tighter supervision that restricts profitability potential while adapting to rapid technological changes and shifting operational paradigms.