Future Tense: What Two Years of Dodd-Frank May Tell Banks About the Future
When the Dodd-Frank Act was enacted two years ago, many of the details were unclear, leading many industry observers to wonder what its true impact would be. In fact, some had hoped the Dodd-Frank storm would simply blow over. By now, it’s clear that the principles embedded in Dodd-Frank are here to stay. While some adjustments may be made around the edges of this monumental law, the core principles targeting systemic risk are set: financial stability (through the creation of the Financial Stability Oversight Council, the orderly liquidation authority for systemically important financial institutions, and higher capital requirements) and consumer protection (evidenced by the addition of the Consumer Financial Protection Bureau). Big changes like those aren’t likely to go away anytime soon—and they are expected to continue to have an outsized impact on risk management and compliance for banks.
Financial institutions that don’t take an aggressive approach to this new regulatory reality may risk getting left behind. Exactly how these types of changes will disrupt the industry remains to be seen. It seems highly likely that banks will become less interdependent, for starters—a key goal of the legislation. It’s also possible that institutions as a whole will adjust by becoming more strategically focused on certain business lines, while divesting others. Whatever is around the corner, we believe the four priorities that follow are the ones leaders should consider today to get their organizations prepared to lead into the future
- Become relentless about strategic efficiency
- Treat risk management as an investment rather than an expense
- Wage the talent war
- Double down on data transparency
In this article, we’ll quickly take stock of where Dodd-Frank has taken the industry to date, and then we’ll look ahead to share some suggestions for banks looking for opportunities to turn this new regulatory environment to their advantage.