As the investment banking industry is still in recovery mode following the financial collapse in 2008, the only certainty heading into 2013 is uncertainty. The industry is faced with a slew of new regulations, not to mention a badly bruised reputation following the collapse of several high-profile investment banks during the crisis. Tim Long, Managing Director in Protiviti's U.S. Financial Services practice, has plenty of experience to bring to bear, joining the firm in 2012 after a more than 30-year career at the Office of the Comptroller of the Currency, even serving on a group that advised Treasury Secretary Henry Paulson during the economic crisis.
Consulting: How would you say is the state of the financial services consulting market as we start 2013?
Long: There's a lot of uncertainty surrounding Dodd-Frank, which hasn't even been finalized yet. The financial industry is still facing a lot in terms of regulations and laws. The financial industry is under a lot of scrutiny right now. Some of it is deserved but I would contend that some of it's not. They've got some work to do.
Consulting: What are some of the biggest challenge clients are facing in these new regulatory times?
Long: Dodd-Frank, mostly part 165, is kind of a road map of things banks are going to have to do, everything from detailed capital planning and stress testing, liquidity planning, liquidity stress testing, and risk management mandates that the regulators are putting on the banks of various sizes. There's a lot of work left to do, a lot of it is hard work and it's going to take not only more people on the part of the bank, but I would contend it will take a different skill set to really get in compliance with what the regulators are demanding. They've got to get their risk management systems to a strong level. That's something new, it's a high hurdle and something they need to attain and put pressure on the larger institutions to do that. That will be a challenge for them.
Consulting: How are banks moving to adapt to these changes?
Long: It's causing banks to really think through their risk management practices, how they set risk, how they measure it, how they report it up, how they escalate issues. For the smaller banks, Dodd-Frank has had a pretty significant impact. That's a tough deal for them. People are saying there will be consolidation and that community banks may disappear in the next 5 years. It's tough for them to compete at times, many of them have gone into more of a fee-income based model, but with the CFPD bearing down now on some of this stuff now, some of these community banks are going to look at their business model and find it may not work anymore.
Consulting: How do you imagine all of this regulation will change the landscape of the space going forward?
Long: That's what keeps me up at night. I worry about this. You go back to your days in grade school in your social studies class what did you learn every country needs? A good education system, a good defense system, a good healthcare system and a vibrant banking system. The banking system is on its knees right now. If we're going to get growth in the economy you have got to have a banking system that is working and that people are not afraid to make loans and do the things banks do. We're in this environment right now of just demonizing the financial services industry. They are not evil people. This is a capitalist society. There are shareholders that own these firms and obviously they have an obligation to protect their depositors.
So clearly the industry got a little bit off the rails and banking probably lost sight in some cases of what their role and what is their true culture, but I think they get it now. They realize mistakes were made. We've got to make the system work. You can't have a risk-free banking system. If you bring the risk out of the banking system, you don't have a banking system. You've got to let a bank be a bank; they've got to take risk. What you've got to make sure is they understand the risk they're taking, have they articulated it, can they measure it and do they have the ability to control and stop when it starts to breach their internal systems.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.