Bold Banking Predictions for 2013
Fearless forecasts from BankThink's stable of industry veterans, experts and critics. (Image: Thinkstock)
Back to the Future
"Nonbank mortgage specialization firms are going to grow market share quickly as banks retreat from housing finance under weight of Dodd-Frank and Basel III. Wall Street will raise hundreds of billions of dollars in new capital for non-bank firms, while commercial banks fund warehouses and investors return to private label RMBS."
Chris Whalen, Tangent Capital Partners
"Community banks will remain viable contributors to their local economies. Many will fail, merge or sell as a necessity set in motion by more regulation, more capital, more expenses and ongoing stress. With no new charters their numbers will diminish as they continue on a path of extinction."
Robert Smith, Commerce National Bank, Newport Beach, Calif.
"The bipartisan reaction to the Basel III proposals leads me to believe that 2013 will witness the return to the historical norm for bank legislation and regulation: bipartisanship, or even non-partisanship."
Wayne Abernathy, American Bankers Association
"Another large bank risk management blow-up will occur. There is still too much prediction, and not enough judgment in risk management."
J.V. Rizzi, consultant and investor
"In 2013 Wall Street will embark on repairing its disastrous relationship with White House, in the process giving away some ground on taxes and regulations. They will realize this is the fight they cannot win."
Katya Grishakova, Occupy Wall Street
(Image: Bloomberg News)
"Banks will win by attrition most of the perceived big battles: No Volcker rule effective in 2013, shelter from Basel III, inclusive QM and QRM, suppressing money funds, no coherent regulation of global activities. Those victories will increase bank profits and stock prices by $0."
Andrew Kahr, consultant
Recovery, But No Resolution
"The U.S. housing finance recovery will continue. The fate of Fannie and Freddie will be intensely debated but fundamental restructuring will not be achieved (I will try to make myself wrong about the latter point)."
Alex J. Pollock, American Enterprise Institute
Brave New World
"Fannie and Freddie will get a makeover in 2013, ending the conservatorship and sending U.S. mortgage finance into uncharted territory. Private capital will replace the GSEs in halting fashion, leading to major market disruptions absent a very careful transition to the new secondary-market structure."
Karen Shaw Petrou, Federal Financial Analytics
(Image: Bloomberg News)
Brighter in Europe
"Most of Europe's banks will turn the corner in terms of earnings and capital ratios. It won't happen by bold strokes but a combination of retained earnings, exiting capital intensive non-core businesses like correlation trading and capital markets trades. By year end, systemically important European banks will be Basel III compliant 5 years ahead of schedule and most of the pressure will be off."
Richard Robb, Christofferson Robb & Co.
"The settlement agreement of the merchant litigation of bank card interchange fees will falter in 2013 either because the court will force the parties to renegotiate it or because the opt-out process will reject it. The agreement is a one-sided admission of a terrible defeat by the small number of merchants who brought the suit. Their humiliating concessions on interchange pricing and promises never to legally challenge it again would severely harm millions of merchants who were not in the lawsuit but who would be ensnared by if the court approves the settlement on a class basis."
Duncan MacDonald, former general counsel of Citigroup's Europe and North America card businesses.
"2013 will likely be a tipping point in moving the conversation beyond mobile banking.
Banks have the data and the means available to further engage customers' changing behavior: What does my aggregated financial picture look like right now? Which account should I pay with? Proximity awareness and user preferences will help drive us toward the best place for coffee, restaurants, groceries or gas. Our mobile applications will see renewed focus on engaging and simplified customer experiences, and improved contextual offer placement. We'll see more applications leveraging voice, as well as the social graph because individualized preferences are critical."
Brad Leimer, Mechanics Bank
"The total number of branches in the U.S. will remain relatively stable, albeit with increased closures of older bricks-and-mortars. Banks will still provide face-to-face interaction to customers who seek it, but will increasingly accomplish it without large and expensive legacy branches. In-stores, on-sites, and considerably smaller brick-and-mortar branches will proliferate. 'Alternative' branches are the new mainstream."
Dave Martin, NCBS
Changing of the Guard
"2013 will see bank boards across the country intensify their focus on succession planning. The average bank CEO is 58 years of age and more than 40% are 60 years of age and older. With banks healing and stock prices recovering, 2013 will be the front end of a wave of baby boomer bank executives stepping out of full-time positions."
Richard J. Parsons, author, "Broke: America's Banking System"
Facts on the Ground
"The government-controlled mortgage giants Fannie Mae and Freddie Mac will be fundamentally reformed in 2013, but not by elected officials. As Congress and the Obama administration idle, Ed DeMarco, the unconfirmed head of the Federal Housing Finance Agency will singlehandedly reinvent housing finance in the U.S. By the time lawmakers weigh in, many key decisions will have been made for them."
Julia Gordon and John Griffith, Center for American Progress
"My prediction (more of a hope) is growing attention to reducing uncertainty. Uncertainty is the dominant attitude among banks, businesses, consumers, regulators and politicians. Everyone is keeping their powder dry. Until that changes, the economy will remain wimpy and we will continue to need big federal deficits to prop it up."
George Sutton, lawyer, Jones Waldo
Micromanaged by Washington
"It will become abundantly clear while it didn't end TBTF or do anything to prevent the next financial crisis, Dodd-Frank drove a stake into the heart of private-sector banking. With Washington embedding thousands of overseers in banks, rolling out hundreds of almost impenetrably complex regulations, regulatory mandarins rather than financial institutions, savers and borrowers in the market determining the right products, risk management and winners and losers, and TBTF Goliaths now de facto government-sponsored-enterprises, the banking industry is now a public utility. Consequently, financial services value and innovation, and economic growth will suffer."
Eric Grover, Intrepid Ventures
Bar Codes for Banks
"The G-20's Financial Stability Board will launch its Global Legal Entity Identifier (LEI) initiative. This will start the world's regulators on the first leg of a journey to bring transparency to financial markets. It is the inaugural leg of an eventual globally unique identification system for all the world's financial market participants and the products they trade, own and process. It will finally give regulators the ability to see that which they have been mandated to oversee. It will also give the financial industry an ability to process transactions in real time and make straight-through-processing a reality."
Allan D. Grody, Financial InterGroup Holdings
Won't Get Fooled Again
"The debacle of political tinkering on the taxpayer's dime, which set Fannie and Freddie on their collision course, will not be repeated. Americans have become much wiser as a result of the collapse. Despite the pressure of an election year, there was a vigorous debate regarding the future of the GSE's and the development a non-government backed secondary market. Compliance, quality control and quality assurance now have a seat at the lending table."
Richard Booth, mortgage banker and consultant
"One, Congress will not enact meaningful Dodd-Frank reform in 2013. Two, Congress will not enact any housing-finance or Fannie/Freddie reforms in 2013. Three, the regulators will continue to struggle finalizing the complex regulations spawned by Dodd-Frank, especially the Volcker Rule. Four, the CFPB will bungle its formulation of the QRM and QM regulations, which will impede mortgage origination activity, in turn generating ill will for the CFPB."
Bert Ely, Consultant
(Image: Bloomberg News)
"Financial institutions talk about advanced digital marketing but show television advertisements when showcasing their marketing work. Despite having extraordinarily deep customer data and routine digital access to customers, financial institutions will lag consumer marketing peers in adopting big data and advanced digital marketing techniques to sell their own products to their own customers in 2013."
Devon Kinkead, Micronotes
Small Business Comeback
"2013 is going to be a pivotal year for small business credit card issuance. Having made a modest return since the retrenchment during the financial crisis, small business credit cards have come back as a priority growth area for small business banking. If small merchants can grow sales and avoid macroeconomic pitfalls, this product will take off this coming year."
Dan Ewing, McKinsey
"2013 is the year banks dust off their reputations by embracing the middle class. The mass market isn't what it used to be. Bankers need to leverage technology to reinvent products, delivery channels and the overall experience to win back the hearts - and wallets - of the average consumer. By focusing on the financial well-being of their customers, banks might just improve their own financial outlook."
Jennifer Tescher, Center for Financial Services Innovation
Into the Shadows
"2013 will be a year of implementation and consolidation, when the backlog of Dodd-Frank Act rules slowly begins to clear and financial institutions start adjusting in earnest to the 'new normal.' Business models may begin to shift in turn. Banks will continue to shed non-core, higher-risk, more capital-intensive businesses, and with greater regulation of consumer finance, more payments and lending activity could move out of the regulated sector and into the shadow banking system."
Eugene A. Ludwig, Promontory
The Claws Come Out
"When you look at anti-money laundering enforcement actions in isolation, they can seem extreme in tone or in amount. But when you consider the steady march of regulatory and prosecutorial pressure since 9/11, it's clear that a ramp-up is under way. The traditional recipe for AML enforcement actions is a combination of a monetary penalty and an enforcement action, but regulators and law enforcement have other tools at their disposal. In my view, future enforcement actions could very well be coupled with additional tools, including individual liability and potential implications for licenses and business models."
Michael Dawson, Promontory
Loss of Trust
"Federal policymakers will do with Social Security and medical entitlements what they did with housing and mortgage entitlements during the sub-prime lending debacle, essentially nothing. By the end of the year, the financial markets will once again deliver the message: "Debt financing is unsustainable and likely to default." Rather than being viewed as a safe haven, US Treasury securities will be shunned internationally, but domestic bank regulations will still encourage their purchase."
Kevin Villani, University Financial Associates
(Image: Bloomberg News)
Bye Bye Banks
"Consumers will continue to abandon traditional depository institutions, finding that by disaggregating their financial needs and using nonbank providers they can reduce the costs of meeting their financial obligations and regain control over when, where and how they perform financial transactions. As a result, non-bank providers will expand the breadth of their financial offerings."
Jim Wells, Wellspring Consulting
(Image: Bloomberg News)
"The federal government will establish a 36% APR ceiling on small loans, effectively putting an end to payday lending in the U.S. The Department of Housing and Urban Development will promulgate a disparate impact regulation that it has been considering for more than one year."
Gregory D. Squires, George Washington University
Fearless forecasts from BankThink's stable of industry veterans, experts and critics.