The triple transformation - McKinsey & Company

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2. Earnings headwinds may
increase
The regulatory, technological, and macro econo
mic challenges banks are facing are likely to
increase rather than diminish over the coming
years, re strain ing earnings growth. Further, many
ins ti tu tions recog nize that increased profits alone
may not be sufficient to renew investor trust and
improve market valuations. Sustainable growth
is the key. Meanwhile, the difficulties banks are
facing have been exacerbated by recent scandals,
which have fueled mistrust among customers
and society at large.
Challenges more daunting than expected
Regulation has become more complex
and burdensome. The banking sector faces
unprecedented reg u latory change, led by the
new frameworks to which the G20 leaders have
committed them selves. These include new
rules for capital, liquidity, and funding under the
Exhibit 9
Regulation will strongly affect retail banking profitability –
Basel III as main driver
2010 ROE, percent
Preregulation
Basel III
EU mortgage
directive
EU payments
regulation (SEPA)
EU investment
regulation (MiFID 2)
Country-specific
regulation 1
Postregulation
-0.4
-0.2
-0.4
n/a 2
9.5
13.5
-2.9
Basel 2.5 and Basel III frameworks, and a shift
to standardi zation, transparency, and clearing
through central clearing houses for OTC derivatives.
The G20 has also mandated an additional
capital surcharge for globally systemically important
financial in sti tu tions (G­SIFIs) and has required
G­SIFIs to develop recovery and resolution plans
for times of stress.
In addition, there is ample regulation on a regional
and national level. In the United States, the Dodd­
Frank Act mandates more than 200 new regulations,
and 67 studies and reports to be conducted
by regulators. The United Kingdom may
“ring­fence” retail banking operations in 2015, following
the recommendations of the Independent
Commission on Banking.
In the retail sector, a wave of consumer protec tion
has been rolled out, with a potentially signifi cant
effect on profitability. The changes range from
France UK Germany Italy
1 Germany: taxes and levies; establishment of a fee-based advisory model; UK: ICB ring-fencing, FSA on PPI, living wills, account switching/portability,
taxes, and levies
2 Country-specific regulation in France and Italy has either been implemented already in 2010 or has only low impact and therefore
has not been modeled
SOURCE: Day of Reckoning for European Retail Banking (McKinsey, July 2012)
7.0
-0.4
-0.1
-0.5
-2.8
13.6
-2.8
-0.1
-0.1
-0.4
-0.3
3.6
6.6
-2.1
INACCURACIES ARE
DUE TO ROUNDING
-0.3
-0.1
-0.1
n/a 2
3.1
5.1
-1.4