The BASEL III Accord is now requiring immediate action for those financial institutions doing business in the Eurozone, with most elements anticipated to be adopted in some fashion within the US in this decade. A by-product of this regulatory framework highlights how a financial institution's real-time understanding of the dynamic relationships between assets, liabilities, and cash flow can become a key strategic advantage when deciding how to best allocate these resources to maximize profitability while simultaneously managing risk. Along with the BASEL Accords, Dodd-Frank is raising the bar for risk management standards, and recently-modified FDIC assessment rules add another consideration necessary to properly balance risk and profitability. Combined with the reduction of fee opportunities and the likelihood that interest margins will remain thin by historical standards, strategic asset-liability management and pricing are ever more critical to profitability.
While the BASEL is requiring financial organizations to execute a more rigorous regulatory framework, the fluidity of the marketplaces within different asset classes is demanding that organizations become more nimble. One example of how regulations drive competitive advantage when approached with structured agility is found within Capital Markets organizations. Through real-time business intelligence solutions, a Capital Markets business unit may synthesize a host of external market variables, such as federal interest rate and competitor product offerings, and internal organization factors, such as deposits on hand and loans outstanding, to optimize daily pricing of loan products to maximize or *minimize* loan originations to meet both regulatory and profitability goals.
While implementing risk management systems and analysis capabilities to support BASEL II and BASEL III and other regulatory mandates, institutions must consider other issues and opportunities beyond simple regulatory compliance. Business intelligence innovations, supported by robust, integrated data management principles, provide opportunity far beyond risk management strategies and provide financial institutions opportunities to delight the customer and improve competitive advantage. Areas to explore include treasury and liquidity management; profitability analysis across multiple factors such as product, channel, and customer segment; real-time credit risk monitoring to actively manage portfolio balance and performance; and marketing analysis to offer "next best product" to each customer based on profile and relationship history.
The bank of the future will not only understand the criticality of strategic risk management principles within highly centralized organizational units, it will also develop practices that enable sales and operational personnel to respond and support this dynamic environment. Effectively leveraging business intelligence, financial services, and data management expertise as risk management strategies are applied to BASEL and other regulatory changes gives an institution the opportunity to concurrently address value-add business strategies.