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Basel III: Is Your Firm Prepared?

Posted on  21 April 14  by 


FrenchCapital requirements at many financial institutions will soon become more daunting.  As the Basel III requirements come into play, the total capital adequacy requirement could increase by up to 600 basis points.  The outcome of the recent Fed stress tests should illustrate the seriousness with which regulators are approaching capital adequacy.  Citi’s failure was primarily based on qualitative, rather than quantitative, assessment of the weaknesses of its risk models.  Banks need to be able to clearly model and thoroughly prepare for adverse economic events.

These new changes are not just relegated to banks, however.  Fund management companies will face their own set of capital challenges.  Funds will face a higher bar for liquidity requirements and redemption obligations.  These new requirements will force funds to revise their risk models, clean up their data, enhance their recordkeeping, and bulk up their liquidity analysis.  They will also force changes to trading platforms and infrastructure, a large portion of which are outdated.

To pinpoint these technology shifts and strategize for 2014, check out our new survey results on trading and risk technologies.

Are Bank Margins Finally About to Improve?

Posted on  21 April 14  by 


PhanThe latest release of the Federal Reserve’s Senior Loan Officer survey back in January revealed a decidedly mixed picture of the state of commercial lending. While it is true that most executives surveyed reported stronger business demand for credit, almost 70% of respondents said that credit spreads were continuing to narrow. This was the 16th consecutive quarter in which a net majority of respondents reported eroding spreads. On the performance side of we can see this reflected in US banks’ quarterly net interest income which have been falling since on a year-over-year basis since January 2011.  

The main culprit for these thinning margins and falling income is the historic low interest rate environment in the United States, which itself is the result of the unprecedented expansionary monetary policy adopted by the Fed in the wake of the financial crisis. After having set the short-term Federal Funds rate at near zero, the Fed embarked on three rounds of quantitative easing, i.e. buying assets with newly created money, to directly lower the yields on long-term interest rate. Since 2009, the Fed’s balance sheet ballooned from around $500 billion to nearly $4 trillion, more than one third of which is composed of mortgage-backed securities.  

And yet all of this may soon change. With the US economy entering into a more robust phase of recovery, the Fed under Janet Yellen put out a more hawkish than expected statement regarding interest rate. While the minutes from the Fed’s March meeting reaffirmed fixing short-term rates at near zero at least until the end of 2014, they did announce additional tapering to the monthly asset purchases under the QE program. As a result, long term interest rates are already rising. The yield on 5-year Treasury notes has risen by 98 BP in April 2014 compared with the same period last year. For the 10 year bond, the figure is 87 BP (see chart). For banks, who tend to borrow in short term markets and lend long, the steepening of the IR curve will provide a good opportunity to increase margins at a time when demand is robust. In fact, margins may already be happening. CEB’s analysis of the FDIC’s data for the last quarter of 2013 revealed a 1.3% in net interest income compared to the same period in 2012. Although this would be a small change, it would represent the first time in almost 3 years that net interest income has risen.

Next month CEB TowerGroup will be publishing new research  that provides more detailed analysis on how rising interest rates affect bank performance. If you are interested in a preview of this research or would like to discuss more, please contact us.

Retail Banking: Technology Roadmap for IT Strategic Planning

Posted on  18 April 14  by 


FocardiIT departments have multiple types of IT roadmaps, for IT inventory management, lifecycle management, system consolidation and strategic planning.  Although business strategies or changing market requirements clearly impact IT spending, IT planning is often done in isolation from business strategy, or technology plans and business plans are changed at different cycles and become misaligned. 

Yet the demands on the IT department are such that it is required to align spending with strategic priorities, build and communicate IT plans to other departments, and justify the level and allocation of IT investment dollars.  This includes the ongoing need to prioritize and sequence new technology investments and target IT investments where they will deliver the most business value. IT planners also need to look at IT development timelines, implementation risk, value and cost on a relative basis for all types of software applications in retail banking. 

This CEB TowerGroup webinar will:

Ensure your firm is getting the highest value from its IT planning processes.  Visit CEB TowerGroup, for more information.

How to Make an Exploit Like “Heartbleed” a Non-Event

Posted on  17 April 14  by 


maloAnother day, another vulnerability.

The recent press regarding the OpenSSL vulnerability called “Heartbleed” is all-too-familiar for those who follow such things. Vulnerabilities in the technology that we use to run the tools of our information age are discovered en masse every day. What makes the Heartbleed story compelling is the foundational nature of the exploit and the possible exposure of authentication credentials. However, this is not the first example of this type of a problem and it won’t be the last. The speed of change and pure scale of software all but guarantees this.

Our members find the first task at hand in response to Heartbleed is in the clear articulation of the scope of the issue and potential impact. They have told us that initially their enterprise network and information security teams were working diligently to ensure a complete inventory of servers and network components in place that may be impacted by the vulnerability, and whether those components have or have not already been patched.

There is a patch that became available on March 21, and some server administrators have already implemented the update as part of their normal patch management schedule. Now teams just need to make sure all other vulnerable servers are patched, and recorded as such.

In light of recent events with Heartbleed, we recommend that banks do the following:

  • Scan your networks for the vulnerability using a commercial network scanning tool. Most should be updated to include the Heartbleed signature.
  • Review and update network inventories for external and internal information networks.
  • Reaffirm patch management processes and reporting for all network components.
  • Ensure best practice and participation with industry firms such as the Financial Services Information Sharing and Analysis Center (FS-ISAC) or relevant Computer Readiness Teams (CERTs) such as US-CERT.
  • Evaluate services from organizations that investigate vulnerabilities as well as provide patch instructions and recommendations. The key to this is the need to receive information which is “actionable,” not just interesting.

These steps form a basis for sound vulnerability and patch management strategy, but this strategy must also be woven into efforts across the enterprise. As our 2014 Technology Roadmap shows, this is a busy year for IT, and the time to clearly define and communicate this fundamental practice is now.

Financial Services Business Barometer: Growing or Shrinking Budgets?

Posted on  16 April 14  by 


Analyzing the DataIn Q4 of 2014, CEB TowerGroup Wealth Management surveyed over 1,000 senior financial services executives from the largest global companies as part of a larger survey about business conditions and expectations of the financial services industry.  This report examines expected IT spending, as well as expectations for revenue growth, cost pressure, and sales.

Download this report to learn what financial services executives expect to change in 2014, including:

  • How executives expect spending for IT software to change: 46% of executives in North America expect spending for IT software to increase in the future, compared to 44% of executives globally.
  • How executives expect the operating margin to change: Compared with the past quarter, a higher percentage of executives expect an increase in cost pressure (63%, compared with 61%), while the same percentage expect increase in revenue growth (69%). 

Members can download the report Financial Services Business Barometer, Q4 2013: Quarterly Reports on Business Conditions and Expectations in Financial Services to expand on these and other trends.

Introducing the 2013–2014 Insurance Technology Survey Results

Posted on  15 April 14  by 


CressmanEach year, CEB TowerGroup Insurance surveys insurance technology executives worldwide about the state of technology investment in their organization. This year, we surveyed executives on 23 technologies in insurance and asked them about the year of installation of their current technology, their planned adoption or replacement of the technology, the average spend on use, implementation and maintenance of each technology, and expected trends in IT budgets.

Some highlights of this year’s survey include:

  • 6 in 10 insurers expect spend on cloud technology to increase by 2015
  • One quarter of insurers plan to adopt predictive analytics by 2018
  • CRM adoption is expected to ramp up, with almost 50% of insurers reporting a spend increase by 2015

Members can review the survey results in two ways:

Drive Competitive Advantage with the Insurance IT Roadmap

Posted on  10 April 14  by 


PauliSubmitting and justifying budgets every year probably hits most insurance executives list of “things I don’t like to do.” Getting the dollars allocated correctly is a significant challenge.  Our survey results show that core system spend still tops the charts, as well as other learnings such as:

  • The new role of cloud technology
  • How the risk associated with technology adoption has shifted
  • Technology value drivers are transitioning from “spikes” to balanced

Register now for our upcoming webinar, “The Realization of Service: 2014 Technology Roadmap for Insurance,” which will be useful for:

  • Insurers: Compare your planned investment roadmap to the overall industry.
  • Technology providers: Determine which software products will be most in demand, and which applications need to demonstrate greater value to the industry.
  • Technology buyers and sellers: Learn how insurers perceive the risk, value, and urgency of various technology applications

Visit the CEB TowerGroup Insurance web site to register today.

Now Available! Online Polling for Wealth Firms

Posted on  10 April 14  by 


Submitting a VoteIn an effort to support our membership, CEB TowerGroup Wealth Management has been working to increase the frequency of our survey efforts to help wealth management firms quantify the impact and importance of technology investments.  We’re pleased to launch a new polling feature on our website. The first  question is:

Thinking about the level of digitization within your organization, please estimate the percentage of volume that enters your firm already in a digital format (e.g., new account forms, transaction requests, account changes, etc.)

New polls will be rolled out once a month, and will be posted on our member site and announced in our weekly newsletter.  Questions will typically come from anonymous users, and our team will release the findings shortly after the polls close.

Get involved in the polling process by:

  • Answering our current polling question
  • Submitting polling questions: E-mail our research team to submit questions to the polling queue.  Questions may be edited for clarity or to combine multiple member inquiries.

Portfolio Management: Two Factors That Set Innovators Apart

Posted on  9 April 14  by 


FrenchAsset management firms cannot practice portfolio or risk management the old fashioned way.  Competition from low-cost indexed funds and ETFs is shaking up the industry.  Alternatives, from hedge funds to private equity, are increasingly drawing flows.  The increased competitiveness is forcing fees down across the industry, and firms need to adapt.  At the same time, generating investment returns without taking undue risk is more challenging than ever.  Investment firms are rethinking all aspects of their business, and innovative portfolio and risk practices offer a promising way forward. 

There are two things that innovative asset managers are doing to set themselves apart:

  1. Aim for integrated portfolio analytics:  Technology and functional areas once seen as distinct are blending into unified strategies.  Portfolio construction, risk forecasting, and strategy refinement are collecting around portfolio analytics, which combines components of each.  The best firms will capitalize on this shift by reorganizing structural siloes into efficient centralized systems that will benefit PMs and risk managers alike.
  2. Manage risk with enterprise dashboards:  Asset managers have long managed risk at the portfolio level, and had little incentive to push for an enterprise-wide view.  Regulatory and other pressures are shifting firms from this approach.  Survey data shows that only 42% of firms currently have a risk dashboard that provides firm-wide insight.  Leading firms will integrate disparate systems to estimate total risk and create a risk dashboard for executives.

Data at Your Fingertips: Using CEB’s Interactive Tool for Instant Access

Posted on  8 April 14  by 


sturgillExplore CEB Towergroup’s survey data by generating custom cuts based on your data needs. Narrow results by customer demographics, region, wealth segment, business ownership and market type.

Business Barometer

  • Sixty-six percent of FS executives are expecting higher revenue growth, as well as increasing cost pressures.

Adoption and Investments in Retail Banking Technologies

  • Over half of retail banking executives feel that mobile payments solutions are of high value, yet also pose the highest risk across all technology investments.

Consumer Financial Monitor

  • Customers aged 47-65 are the least confident in retail banks across all trust indicators.

This is just a fraction of the data that is available from CEB Towergroup’s Interactive Data Tool.  Customize our proprietary survey data to meet your information needs.