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2012 Predictions Revisited: What the Seers Got Right and Wrong

A year ago we asked BankThink's regular contributors to make bold predictions about 2012. Here's a look back at their forecasts and the actual outcomes.

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PREDICTION
"The 2012 elections will usher in a government that is laser-focused on economic growth and improving America's competitive standing in the world." — William M. Isaac, former FDIC chairman

OUTCOME
If Isaac's idea of a government "laser-focused on economic growth" meant a victory for Mitt Romney (whom he supported), it didn't happen. President Obama won re-election.

(Image: Bloomberg News)

PREDICTION
"The U.S. will end its love affair with lowest common denominator international regulatory accords. A less complicated regulatory regime will be established to prevent the extinction of community banks." — William M. Isaac, former FDIC chairman

OUTCOME
FDIC Vice Chairman Thomas Hoenig (pictured) came out in favor of the U.S. scrapping Basel III, and implementation in this country was indefinitely delayed. But the fight is far from over; regulators remain committed to finding a way to implement Basel III.

(Image: Bloomberg News)

PREDICTION
"Megabanks will simplify their business models and shrink their balance sheets." — William M. Isaac, former FDIC chairman

OUTCOME
Asset sizes of the major banks remained virtually flat. The year saw some significant business line pullbacks, from Bank of America's vastly reduced presence in the mortgage business and the sale of its overseas wealth management unit to Citigroup's continued winnowing of Citi Holdings.

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PREDICTION
"Benjamin Lawsky will ascend to national prominence by turning a formerly moribund New York State Banking and Insurance commission into a powerful force … as director of the re-branded New York State Department of Financial Services." — Joel Sucher, documentary filmmaker

OUTCOME
Indeed, Lawsky (pictured) made waves and ruffled feathers with his money laundering case against Standard Chartered, which resulted in the U.K. bank paying hundreds of millions in fines.

(Image: Bloomberg News)

PREDICTION
"The Durbin Amendment to Dodd-Frank will be substantially amended in 2012, and Senator Durbin will be a co-author." — Mark W. Olson, Treliant Risk Advisors

OUTCOME
Wrong. Despite bankers' concerns about the harm the Durbin amendment will do to industry revenues, there was no serious legislative effort — by Dick Durbin (pictured) or anyone else — to mitigate its impact.

(Image: Bloomberg News)

PREDICTION
"The Durbin Interchange Amendment won't be repealed before the election." — Eric Grover, Intrepid Ventures

OUTCOME
As noted, no Durbin repeal.

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PREDICTION
"A much more workable and somewhat simplified version of the Volcker Rule regulations will emerge." — Eugene A. Ludwig, Promontory Financial Group

OUTCOME
This did not happen. The proposal issued last year garnered more than 18,000 public comments and was widely derided as too complicated. Regulators blew past a July 2012 completion date mandated under the Dodd-Frank Act, and it remains unclear when the Volcker Rule will be finalized.

(Image: Bloomberg News)

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PREDICTION
"Consumer compliance issues will continue to emerge as an area of intense focus from a regulatory perspective with some notable enforcement actions brought." — Eugene A. Ludwig, Promontory Financial Group

OUTCOME
Indeed, the CFPB showed its teeth with enforcement actions against Discover, Capital One and even the reputedly customer-focused American Express. There is little doubt that consumer compliance issues are "an area of intense focus."

(Image: Bloomberg News)

PREDICTION
"In 2012, a new issue will be added to the already-formidable mix of industry challenges: the beginning of the end of highly-integrated, inter-connected and diversified holding companies. Regulators will now move on to ring-fence different business lines, essentially corralling traditional banking in fields far from more innovative activities like investment advice and wholesale financial services." — Karen Shaw Petrou, Federal Financial Analytics

OUTCOME
This hasn't happened but regulators are clearly toying with the idea. FDIC Vice Chairman Tom Hoenig has repeatedly called for forcing big banks to spin off their riskier activities. Even Fed Gov. Daniel Tarullo (pictured), who has not gone as far as Hoenig, has suggested that some kind of cap on bank size is desirable.

(Image: Bloomberg News)

PREDICTION
"Those elected officials who ignored the warning signs during the last decade will admit that their policies led to the near collapse of the U.S. housing market … A new non-government-backed secondary mortgage market will take root from its ashes." — Richard Booth, America's First Funding Group

OUTCOME
No notable mea culpas from politicians. Fannie Mae, Freddie Mac and the Federal Housing Administration, meanwhile, still dominate the mortgage market, and it's unclear whether Congress will even try to address housing finance reform in 2013.

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PREDICTION
"Housing markets will continue to go sideways, on average, during 2012, then they will begin their cyclical recovery in 2013. That will have made seven bad years since the house price peak in 2006, whose losses will have offset the seven boom-then-bubble years of 1999-2006. (Cf. the book of Genesis, Chapter 41: seven fat cows followed by seven lean cows.)" — Alex J. Pollock, American Enterprise Institute

OUTCOME
Home prices began to tick up midyear, but remain far from their peak. Home construction accelerated in 2012, too.

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PREDICTION
"Accountability comes knocking in 2012. We will see leadership change at a top financial institution next year." — Susan Ochs, consultant

OUTCOME
Vikram Pandit (pictured) was ousted as CEO of Citigroup.

(Image: Bloomberg News)

PREDICTION
"Shareholder activism, not regulators, will force large-scale bank restructuring and management changes." — Joseph Rizzi, CapGen Financial Group

OUTCOME
Shareholder activism arguably played a role in the management change at Citi — an embarrassing defeat in the annual say-on-pay vote gave the board ammunition to force Pandit out. No major restructurings, though.

(Image: Bloomberg News)

PREDICTION
"Public policy will win out over financial institution dominance of the financial reform agenda. This will happen as there is now a new global center of financial reform, the G-20's Financial Stability Board." — Allan D. Grody, Financial Intergroup Holdings

OUTCOME
The FSB has played a strong role in international regulation, including in the selection of JPMorgan and Citigroup as the two U.S. firms to face the highest capital surcharge for systemically important institutions.

(Image: Bloomberg News)

PREDICTION
"In 2012, Angela Merkel, with help from some bit players, will cause a more destructive financial crisis than we had in 2008." — Andrew Kahr, consultant

OUTCOME
The Continent's crisis was taken off a boil by the European Central Bank's pledge in September to buy unlimited amounts of sovereign debt from countries that agree to specific rescue programs.

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PREDICTION
"On the regulatory and risk management front, the emphasis will continue to be on deleveraging, anemic growth, strategic M&A, and expense management. Strong, organic top line revenue growth will be unattainable and large bank performance will not be sustained at recent levels. … The importance of getting 'rid' of the bad customers and creating excellent retention programs for existing customers will be critical for American banks" — Thomas Day, then at SunGard, now at Moody's

OUTCOME
Revenue growth was tough to achieve. The obvious solution was to slash staff, which the industry did. Banks continued to woo affluent customers, but didn't ditch the "bad" ones: It turns out many overestimated how badly revenues would be hurt by the Durbin debit interchange rule. Revenue is roaring back, as volume makes up for reduced margins.

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PREDICTION
"Ongoing economic weakness will manifest itself in another large nonbank blowup due to poor risk management practices." — Clifford Rossi, University of Maryland

OUTCOME
The brokerage firm Knight Capital nearly failed when to a botched software upgrade resulted in the firm making unintended trades.

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PREDICTION
"JPMorgan Chase Chief Executive Jamie Dimon will have the misfortune of catching a significant amount of fallout from the MF Global mess." — Francine McKenna, blogger, re: the Auditors

OUTCOME
Right executive, wrong mess. Dimon (pictured) spent much of the year on the defensive after misjudging the amount of trouble that could fit in a teapot. The "London Whale" debacle took a modest bite out of JPMorgan's profits and a larger one out of Dimon's reputation as a savvy risk manager. The MF Global story faded from view as investigations bogged down.

(Image: Bloomberg News)

PREDICTION
"2012 will be the year the payment revolution starts. Today I transfer money from my checking account to my children's with a few clicks on my phone. This coming year will be the year when we can pay virtually anyone with such ease. Finally, there will be an app for that." — Richard Magrann-Wells, Willis North America

OUTCOME
The focus this year on mobile payments has been at the point of sale instead of on person-to-person payments. Google Wallet fine-tuned its system to allow more banks to link their cards; the Isis wallet finally launched its tests in Salt Lake City and Austin, Texas; PayPal inked a deal with Discover to allow its digital wallet to work with any merchant that accepts Discover.

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PREDICTION
"In yet a further demonstration of how out of step financial services firms are with their customers, there will be continued hand-waving over the promise of mobile wallets to 'transform banking.' Kind of tough to sell the convenience of carrying fewer cards when consumers' wallets are already lighter due to financial stress." — Jennifer Tescher, Center for Financial Services Innovation

OUTCOME
Mobile gained momentum but is a long way from transforming consumer banking. Even the most enthusiastic early adopters of systems like the Isis mobile wallet and Google Wallet encountered a number of glitches that are non-issues when paying by credit or debit card.

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PREDICTION
"Expect an increased focus on consumer overdraft programs. Financial institutions seeking to replace lost revenue through overdraft offerings will need to respond to regulators focused on consumer credit and protection. A middle ground may be found in anticipated OCC guidance and model policies from the CFPB." — Ryan Gilbert, BillFloat

OUTCOME
The CFPB opened an inquiry into overdraft practices, solicited public input and floated a prototype model fee disclosure. Little has happened since the public comment deadline in June.

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PREDICTION
"The Consumer Financial Protection Bureau will develop, and the industry will adopt, a simplified mortgage disclosure form that will enable all parties to quickly and easily understand the terms of the transaction." — Gregory D. Squires, George Washington University

OUTCOME
The CFPB did indeed develop a simplified form, but bankers balked at the proposal, saying it would create unwarranted burdens and add to confusion. The CFPB has yet to finalize the disclosure form but has promised to consider industry feedback.

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PREDICTION
"As a result of lawsuits filed by the cities of Baltimore and Memphis, Wells Fargo Bank will become a model of fair lending best practices." — Gregory D. Squires, George Washington University

OUTCOME
Wells Fargo is no model of best practices in the eyes of community activists, who in November urged the OCC to give it a failing grade on its CRA exam.

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PREDICTION
"The Financial Stability Oversight Council will restructure the nation's largest banks so that those which are too big to fail will no longer exist." — Gregory D. Squires, George Washington University

OUTCOME
FSOC is still focused on identifying systemically important nonbanks. It has taken no moves toward breaking up or restructuring the nation's largest banks.

(Image: Bloomberg News)

A year ago we asked BankThink's regular contributors to make bold predictions about 2012. Here's a look back at their forecasts and the actual outcomes.

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