Is this the future of Banking?

Australia’s Commonwealth Bank has a vision to be number one in customer satisfaction. This short video shows their idea of what the future of banking looks like with the customer clearly in the centre of their focus.

Is this really what the future of banking will be like?

Mobile Banking, the Future of Banking

Author: Pankaj Snv

Mobile Banking refers to provision and availability of banking and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customized information. Mobile banking is known by various other names. Through mobile banking, one can balance checks, complete his account transactions, make payments on time etc. via a mobile device such as a mobile phone. Most customers use mobile banking through SMS or the mobile internet. Some financial institutions take up another method to provide mobile banking to their customers. They make customers download special software on their mobile phones which acts as client for the mobile banking services.

Mobile banking is growing at a very fast pace and will soon become the primary channel for banks to connect with their customers. While the top banks have the financial and technical resources to make moves in the mobile channel, most mid-tier and small banks lack the innovation and funds needed to explore this front. Many of the largest banks have already launched mobile banking services, which are catching on with customers and generating positive business results. The past few months have brought a flurry of mobile banking announcements from mobile banking vendors who are responding to growing demand from their customers and the recognition of their own powerful position in the mobile banking vendor ecosystem.

Mobile banking technology vendors have a big role to play in helping mid-tier and small institutions take advantage of this emerging channel. Due to the increasing interest in mobile banking software, banks should deploy mobile banking software with confidence that their mobile banking vendors will provide the key to start the engine of mobile banking. Recent mobile banking announcements from technology giants represent the beginning of an evolutionary strategy with regard to integrating mobile banking more deeply into the banking infrastructure. As mobile banking software and payments evolve throughout the year, the associated mobile banking vendor ecosystem will change drastically. Mobile banking has reached a level of maturity that warrants action in the eyes of the mobile banking vendors.

Mobile banking is important to mobile banking vendors from the perspectives of both existing customers and new deals. The customers are eager to try out and use mobile banking capabilities, in large part because the top banks have made competitive inroads into the smaller banks' geographic markets. Pure-play mobile banking vendors have a hard time penetrating these smaller institutions because core banking vendors play the role of technology gatekeeper. It is quite possible that the core banking vendors will emerge as key players in the vendor ecosystem for mobile banking. In technology innovation, core banking vendors may not be trendsetters, but they are pacesetters. Because of their familiarity with banks' core operations, these vendors excel at seeing through the hype regarding new mobile banking software for banks and waiting to act until the market has matured to the point when innovation and profitability converge.

About the Author:

"Pankaj Modi Says:" mobile banking software is one of the best solutions for time saving. Also the banking becomes easier, quicker and foolproof. For more Interest Visit:
http://www.bank-companion.com

Article Source: ArticlesBase.com - Mobile banking, the future of banking

Liquidity & Capital Reform

The UK’s Financial Services Authority (FSA) has issued a discussion paper which focuses on policy measures aimed at addressing the problem of systemically important ‘too-big-to-fail’ banks.

There are huge dangers posed by those financial firms that are seen as too-big or too-interconnected-to-fail, or too-big-to-rescue. In the discussion paper the FSA describes the full range of policy options that are available in order to provide the basis for an informed debate, but also outlines the position which the FSA is currently proposing in various bodies. Key positions are:

• There is a strong case for applying some form of capital (and perhaps liquidity) surcharge internationally for systemically important banks; surcharges could be proportional to continuous and increasing measures of systemic importance, avoiding the dangers created by specific thresholds of systemic importance.
• A capital surcharge could be combined with an approach to global banking groups which places greater emphasis on the standalone sustainability of national subsidiaries, with overt understanding that home country authorities will not be responsible for the rescue of entire groups. The more that groups are organised on this basis, the less the required surcharge at group level might need to be.
• Action should be taken to reduce inter-connectedness in wholesale trading markets, with much over-the-counter (OTC) derivative trading moved to central counterparties (CCPs), and with effective collateral and margin call arrangements for bilateral trades which reduce the dangers of strongly pro-cyclical margin call effects.
• Reform to trading book capital should significantly increase capital requirements and differentiate more strongly between basic market making functions which support customer service and riskier trading activities, with a bias for conservatism in relation to the latter.
• Systemically important banks should be required to produce recovery and resolution plans (‘living wills’) which set out how operations would be resolved in an orderly fashion. If supervision examination of these plans reveals serious obstacles to resolution, then steps will need to be taken to reduce or remove them – this could require restructuring certain parts of the group. Restructuring could include clear separation between retail deposit taking business and businesses involved in proprietary trading activities, with the latter able to fail even if the former were supported in crisis conditions.

The discussion paper also stresses the need to assess the possible cumulative impact of multiple reforms to capital and liquidity regimes now being considered by international standard-setting bodies. It describes the case for significant increases in capital and liquidity requirements to reduce financial instability risks, while recognizing the potential implications for lending volumes and the cost of credit intermediation. It considers methodologies which can help inform judgments on the trade-offs involved.

The FSA’s plan of action includes:
• Living wills: The FSA intends to press ahead with resolution and recovery plans in the UK and work is underway to produce guidance for systemically important firms to use in developing living wills. The plans will build on requirements the FSA has already put in place that contribute to a firm’s preparedness for recovery. By the end of 2009, according to the FSA, a small number of major UK banking groups will have begun to produce living wills as part of a pilot exercise intended to help the FSA develop policy in this area.
• Cumulative impact of capital and liquidity reforms: The FSA acknowledges that given the inherent uncertainties involved in assessing optimal capital and liquidity levels, it means that models such as those described in the DP can never provide ‘the answer’. However, the FSA believes that the conceptual approach described can help inform an effective global debate on optimal capital levels. It will, therefore, encourage global regulatory bodies, industry groups and academics to conduct similar analysis.
•Conference: The issues discussed in the discussion paper will set the agenda for the second Turner Review conference which is being held on 2 November 2009.

The FSA regulates the UK’s financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

Bank Training – Critical Element for Today’s Banker

Banking has changed dramatically in the past decade. These changes have been so far reaching that the old disciplines that were core to the successful banker of the 1990s have long since relegated to the dusty back shelf.

To succeed in banking today the banker has to master a wide range of new disciplines. Although he may never become a true expert in these he or she still needs to have a sufficient working knowledge of the subject to enable a reasonable level of effective decision making.

This is equally true for bankers at the “coal face” such as those at the front desk or in the back office as well as those in the more lofty towers of head office, be they in accounting, audit, strategy, planning, operations or the like.

This is why staff training is so very critical. Bankers today need to understand the wider world, whether it is the operation of payment systems, credit cards, real time gross settlement, Swift, ACH operations, electronic payments, mobile payments and so on.

They also need to have a clear understanding of where banking and bank operations are heading – what is done today and how it will be done tomorrow. Technology continues to change the world. To keep up with these changes, to exploit them to your organizations benefit you first need to understand them. Just look at how the Mobile Phone is redrawing the banking world. New applications and processes for the Mobile Phone are being developed and launched by the day.

Of course all these changes also bring with them new dangers and risks – ways in which the ever vigilant banker and his staff may be duped. So an investment in Operational Risk Management training is also critical. What is operational risk? How it can be mitigated? What is fraud and how do you manage it? What is Business Continuity and how do you set it up? All these are key issues that the modern banker needs to know about.

Citadel Advantage offers a wide & comprehensive range of professional courses and training for commercial and central banks in the areas of; Operational Risk Management (for Basel II and for back-office risk mitigation), Specific Operational Risk Management areas including Business Continuity Planning, Anti Money Laundering & Payment Systems, and Liquidity Management.

We also offer a range of Workshops and Introductory Lectures dealing with the main areas covered in our full courses. If you can't find the exact course in our schedule that you are looking for, contact us. We may be able to build a course for your specific needs. Professional courses and training are available at a centralized venue, regionally (currently in Southern Africa & Western Europe), or In-house on your premises.

We use real-life case studies to illustrate the course material, so enhancing the learning process.
Our training courses are offered as:

• Public Courses: Citadel Advantage provide courses and lecturers to the key banking and risk training organizations around the world as well as in its own name. Ask your local or regional provider of banking and risk training courses for a Citadel Advantage course.
• In-house Courses (at your location or offsite at a location of your choice): Citadel Advantage provides cost-effective in-house training programs that allow you to determine the, depth, attendee size, length and sequence of the training within the security of your own organization. If you have 5 or more people to train our In-House training service will save you money. All Citadel Advantage courses can be run on your premises anywhere around the world.
• Tailored Courses (to meet your organization's specific needs): Citadel Advantage also provides tailored training services to the banking and financial sector. We can tailor any course to your needs or develop a new course within a relatively short period of time as required.
• CAPMen Program (the “Citadel Advantage Personal Mentoring” program): This service is designed to provide non-judgmental and professional support to those (Mentee) in senior management or aiming to reach senior management positions requiring an in-depth competency in the areas “Payments & Settlements” and “Operations Risk Management”. “CAPMen” Mentoring utilizes the full range of our experience and specialized professional courses to provide coaching, guidance and advice on a one-to-one basis, in your offices, helping you, the professional, set new goals, broaden your vision and build strategies. “CAPMen” mentoring also helps develop personal management skills such as creative thinking, decision-making, problem-solving, and effective use of resources.
  
• For details of our current course offerings please see; http://www.citadeladvantage.com/schedule.htm
  Our full course catalogue may be viewed at; http://www.citadeladvantage.com/catalog.htm

Liquidity – New Risks In Uncertain Conditions

For the past 15 years at least central banks around the world have been pushing “just-in-time” intraday liquidity as the preferred method of banks funding their real-time settlement (RTGS) accounts. While the implementation of RTGS took the settlement risk out of the majority of financial systems, it adoption and use for more and more critical financial systems (such as CLS) has exacerbated another problem – liquidity risk. This weakness has been spotlighted by t the liquidity crises that affected markets in March 2008 and, more severely, in September and October 2008. It can no longer be taken for granted that just-in-time liquidity will be available to financial market utilities at a time when multiple market participants are in danger of defaulting. This is the findings of researcher made public in the “Chicago Fed Letter” (see http://www.chicagofed.org/publications/fedletter/cflnovember2009_268a.pdf )

Sins of the Risk Managers

Have risk managers really been doing their jobs properly? According to many they certainly have not. I came across this interesting item on the sum2llc Blog. It is certainly worth a read.

Click on the post title or the link below.
http://sum2llc.wordpress.com/2009/09/28/day-of-atonement-al-chet-for-risk-managers/

Liquidity and Wholesale Payments

The global financial crisis has yet again focused minds on the need for banks to provide their corporate customers with liquidity and risk management solutions. Additionally, while regulatory measures such as the Single Euro Payments Area (SEPA) and anti-money laundering (AML) legislation require the continuing transformation and investment in wholesale payments, the financial crisis means that heightened cost management is now a critical necessity. The industry has begun to question whether managing these conflicting requirements implies the need for a new approach to wholesale payments technology.

Datamonitor sponsored by ACI Worldwide and IBM, has just published a report that looks at business and technology responses in wholesale payments to the post-financial crisis landscape, and assesses whether a service-oriented architecture (SOA) approach could help to meet these challenges.

Their main findings are;

• Despite the global financial crisis, increasing compliance and customer requirements will continue to drive the need to change wholesale payments.
• Delivering both efficiency and innovation will require the convergence of so-called “siloed” payments operations and processes.
• The underlying IT platforms will need to support process standardization and simplification while achieving efficiency at the same time.
• The SOA approach can enable this change by facilitating extensibility and providing operational leverage while controlling costs.
  

To download the full Datamonitor report go to:
http://www.aciworldwide.com/downloads/PreparingWholesalePaymentsforthePost-FinancialCrisis.pdf

Key Issues in the Management of Liquidity Risk

By Stanley Epstein - Principal Associate & Director of Citadel Advantage.

This is the second of a series of articles on Liquidity and Liquidity Risk that we shall be publishing over the next few months.

This is the second article in a series of articles on the management of Liquidity Risk. In my first article “Managing Liquidity Risk – The 2007 Crisis” I dealt with the severe liquidity problems experienced by banks worldwide, which began in the summer of 2007 and which heralded the current financial crisis. I then examined the concept of Liquidity Risk Management, and in reviewing the events of that summer I explored the reasons why many banks came under severe stress.

The crisis revealed that important issues had been overlooked and ignored. The “Basel Committee on Banking Supervision” in its 2008 review of the situation provided additional guidance in areas like;

• the acceptability of liquidity risk by banks,
• ensuring liquidity levels are maintained,
• the allocation of liquidity costs, benefits and risks to a bank’s activities,
• identifying and measuring all the liquidity risks,
• stress testing,
• contingency funding plans,
• managing intraday liquidity risk, and
• public disclosure as a means to promote market discipline.

In this article I deal with the guidance provided in February 2008 Basel Committee document entitled “Liquidity Risk Management and Supervisory Challenges”.

This guidance has been set out in the form of seventeen individual “principles”. In turn these principles have been grouped into five major categories. I will deal with category and the principle or principles that they each contain in turn.

Fundamental principle for the management and supervision of liquidity risk
This is made up of a single principle that essentially places the responsibility of the management of liquidity risk squarely on the bank. There are a number of actions that the bank needs to take to do this, such as ensuring that a strong risk management framework exists and that a bank is obligated to see that it maintains an appropriate level of liquidity to meet its trading requirements. Within the same principle Bank Supervisors are enjoined to ensure the adequacy of the individual banks liquidity risk management framework.

Governance of liquidity risk management
This section comprises three principles. All relate to the level of liquidity risk that a bank is prepared to take. This includes setting a level of required liquidity to meet the individual banks business strategy, the establishment of an appropriate management structure to manage this risk and the duty of the bank’s board of directors to review and approve all issues relating to liquidity at least annually. The third principle in this section deals with the need for liquidity costs, benefits and risks to be incorporated in product pricing and for the need for all new products to be approved with a view to understanding the effect they have on and how they are affected by the bank’s liquidity position.

Measurement and management of liquidity risk
This is the “meat” of the proposal. It is made up of eight individual principles. I will deal with each of these principle in turn.

• Banks must have a sound process to identify, measure, monitor and control their own liquidity risk.
• Bank must take a total active liquidity view. This means that they must manage their exposures and their funding across all their business lines, currencies and legal entities at the same time. And they also need to allow for legal, regulatory and practical limits to moving liquidity between business the various entities that make up their business.
• Banks must diversify their sources of funding and they should regularly test their ability to raise adequate funds from these sources at short notice.
• Intraday (as opposed to overnight) liquidity must be actively managed so that it can meet the bank’s obligations as they arise. Furthermore a bank needs to plan to do this under both normal and strained conditions.
• Collateral must also be actively managed and care should be taken to separate assets which are already tied-up and those that are free.
• Regular stress tests must be undertaken, using different scenarios. This is important as it will help determine if the bank can keep its liquidity requirements and usage within the previously set limits.
• The bank must have a formal emergency liquidity plan. This should also include clear lines of responsibility and escalation procedures. This plan should also be tested regularly.
• Banks are also required to maintain a buffer of unencumbered, high quality liquid assets to meet emergency situations. These assets must also be free of any barriers to their use.

Public disclosure
There is a single principle here – that a bank should disclose information regularly that will permit market participants to form their own opinion as to the bank’s liquidity and its liquidity risk management structure.

The role of supervisors
The final four principles deal with the role of the bank supervisor. Firstly supervisors need to do a regular check of the bank’s risk management structure and its liquidity position. On top of this they should be getting additional information like internal reports and current market information. If supervisors find problems they should also intervene to make certain that these problems are addressed promptly.

There is also a requirement for supervisors to communicate with other supervisors and public authorities, like central banks, both within and across national borders. This is to ensure that there is effective cooperation regarding the supervision of liquidity risk management. This communication needs to take place regularly during normal times. In times of stress this sharing of information needs to increase appropriately.

This guidance was published for initial consolation and comment. In a subsequent article I will deal with some of the “hows”, “whys” and “what to look for” in applying some of these principles.

Download the CA DIGEST here!

We have just published the new edition of the CA DIGEST.

Download it by clicking the Post Link.

Whats the lead story? Why there is no need for a Basel III plus all the latest on Payment Systems, Operational Risk, Remittances and much, much more.

Managing Liquidity Risk – The 2007 Crisis

By Stanley Epstein - Principal Associate & Director of Citadel Advantage

This is the first of a series of articles on Liquidity and Liquidity Risk that we shall be publishing over the next few months.

The whole question of Liquidity Risk Management has become very topical of late spurred on by the initial liquidity crisis in 2007, which occurred in the early stages of the subsequent financial collapse. More and more frequently I find myself being asked the same question or a variation of it “what is the best way to ensure that my bank’s Liquidity Risk Management is on a sound basis?”

The subject is vast. And depending on exactly what you are trying to achieve, so too are the answers.

Before even attempting to paint a broad picture as to the key issues to be addressed in ensuring sound Liquidity Risk Management, I would like to take a step or two back – and explain some of the key principles and issues the surround liquidity management.

Liquidity in the first instance depends on the exact use that the word is being put to. Let me explain. In a pure sense liquidity is defined as the ease and certainty with which an asset can be converted into cash. Money, or cash on hand, is the most liquid asset. Market liquidity on the other hand is the term that refers to an asset's ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value of the underlying asset. Accounting liquidity is a measure of the ability of a debtor to pay their debts as and when they fall due. It is usually expressed as a ratio or a percentage of current liabilities.

In banking and financial services, liquidity is the ability of a bank (or other financial organization) to meet its commitments when they fall due. Managing liquidity is a daily process (in fact in today’s real-time world, this has become a real-time process too) requiring bankers to monitor and project cash flows to ensure that adequate liquidity is maintained. In a banking environment that liquidity may be needed to fund customer transfers and settlements or to meet other demands generated by the banks business with its clients (advances, letters of credit, commitments and other business transactions that banks undertake).

There are many other definitions of liquidity too. Suffice to say that the brief summary above should serve to explain the concept and to illustrate the notion that there are many variations of this.

Almost every financial transaction or financial commitment has implications for a bank's liquidity. Liquidity risk management helps make certain of a bank's ability to meet cash flow obligations. Remember that this ability can be severely affected by external events and the behavior of other parties to the transaction. Liquidity risk management is critical because a liquidity shortfall at a single bank can have system-wide repercussions, called systemic risk. The inability of one bank to fund, for example, its end-of-day payment system obligations could have a knock-on effect on other banks in the system, which could lead to financial collapse. Indeed, the central bank, as the lender of last resort, stands ready with a safety net to help out individual banks (or even the greater “system”). We witnessed this on a massive scale over the past two years in the U.S., Europe, Asia and elsewhere. However getting this assistance often carries an almost impossible price – reputation. Banks that get themselves into this sort of trouble pay a terrible price in terms of the loss of confidence amongst members of the public, investors and depositors alike. Often this price is so high that the stricken bank does not recover.

The market chaos that began in mid-2007 brought into very sharp focus the importance of liquidity to the effective functioning of financial markets as well as the banking industry. Before the crisis, asset markets were buoyant and funding was readily available at low cost. The sudden change in market conditions clearly showed just how quickly liquidity can disappear and that the lack of liquidity (the correct term is illiquidity) can last for a very long period of time indeed.

So we arrive at the summer of 2007. From August onward the worldwide banking system came under severe stress. To make matters worse developments in financial markets over the previous decade had increased the complexity of liquidity risk and its management. The result was widespread central bank action to support the functioning of money markets and, in some cases, individual banks as well.

It was pretty clear at this point that many banks had failed to take account of a number of basic principles of liquidity risk management. Why? Well in all probability, in a world where liquidity was plentiful and cheap, it didn’t seem to matter much.

Many of the banks that carried the greatest exposure did not even have an adequate framework that satisfactorily accounted for the liquidity risks required by their individual products and business lines. Because of this, incentives at the business level were out of alignment with the overall risk tolerance of these banks.

Many of these banks had not really considered the quantity of liquidity they might require to meet contingent obligations because they simply dismissed the notion of ever having to fund these obligations as being highly unlikely.

In a similar vein many banks saw as highly unlikely too, any severe and prolonged liquidity disruptions. Neither did they conduct stress tests that took account of the chance of a market wide crisis (that is one that affects the whole industry rather than just a single other participant) or the depth or duration of the problems. Banks also did not link their plans for contingency funding to the results of their stress tests. And to add insult to injury they also sometimes assumed that irrespective of what happened their traditional funding sources would remain available to them.

With these events still fresh in the minds of banks and bank regulators the BIS (Bank for International Settlements) based “Basel Committee on Banking Supervision” published a document entitled “Liquidity Risk Management and Supervisory Challenges” during in February 2008.

The crisis had revealed many of the critical issues, outlined above, that had patently been overlooked. Based on this, the Basel Committee has conducted a basic review of its earlier “Sound Practices for Managing Liquidity in Banking Organisations”, which had been published in 2000. In their new document their guidance has been significantly expanded into eight key areas. These key areas cover the following principles;

• banks need to determine how much liquidity risk they are prepared to accept,
• banks must keep a level of liquidity commensurate with their needs,
• the costs of liquidity must be allocated to the banks business activities,
• all the liquidity risks must be identified and measured,
• tests that simulate extreme conditions must be developed and used,
• liquidity contingencies must be planned for,
• intraday liquidity risk must be managed, and
• open disclosure is supported as a method for sustaining market discipline.

So what is this new guidance all about? I will be covering Basel Committee’s advice on these key issues and the subsequent industry response in more detail in a series of subsequent articles.