Combined with weak economic activity, most pronounced in the euro area, regulatory pressures have left many banks in the Europe, Middle East and Africa (EMA) region struggling to generate adequate profits, and to demonstrate that they have a viable and sustainable business model. Deleveraging and de-risking the balance sheet may have enabled most banks to meet current regulatory demands for capital and liquidity, but it will not rebuild banks’ profitability. The headwinds of the costs of past misconduct in both retail and wholesale markets, and the myriad pressures to increase IT expenditure, do not make it any easier for banks to secure a viable and sustainable future. These issues are covered in more detail in Part 2 of Evolving Banking Regulation. The detail of regulatory reforms is beginning to become clearer, as is the direction of travel of the remaining reforms. The volume of unfinished business is diminishing as more regulations are moving through the design and calibration stages to implementation (see diagram on pages 6-7). And fewer regulatory reform initiatives remain at an earlier development stage. However, some uncertainty inevitably remains about the prospective appearance of new initiatives. Meanwhile, banks continue to grapple with the complexity of keeping track of and adjusting to the sheer volume of measures and the multiple interactions between them.
Source : KPMG