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Fast Facts: Dodd-Frank Cumulative Weight

March 19, 2013 By Banking.com Staff 1 Comment

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast Facts on The Dodd-Frank Act, which was passed in July 2012 in an effort to reform the financial industry. To date, the complex legislation has been met with mixed success and unintended consequences.

FACT: According to a Davis Polk report, as of March 1, 2013, 148 of the 398 total rulemakings required by Dodd Frank have been finalized, with 129 yet to be proposed.

  • 279 rulemaking requirement deadlines have passed. 176 of these deadlines have been missed, and only 103 have been met with finalized rules.
  • Over the month of February, 12 out of 42 deadlines were met with finalized rules, and no new rules were proposed.

FACT: The General Accounting Office stated that the Dodd Frank Act has had two main financial impacts on institutions; increased regulatory compliance and other costs, and reduced revenue due to restrictions on certain activities.

FACT: In order to understand and comply with the far reaching regulations of the act, agencies and financial institutions have hired more full time employees.

FACT: In August 2012, Standard & Poor’s reported that the Dodd Frank Act could reduce pretax earnings for eight of the largest banks by between $22 billion and $34 billion each year.

  • Much of the higher projected costs reflect the regulators’ likelihood to take a more strict interpretation of the Volcker Rule.
  • The Volcker Rule’s restrictions on proprietary trading and investment in hedge and private equity funds will eliminate past sources of trading and income for some banks.

FACT: The Dodd Frank Act required banks to hold more capital while restricting what qualifies as capital, making payments to investors or retaining earnings more difficult.

The FDIC has announced plans to double the size of the Deposit Insurance Fund, which would take an additional $50 billion out of the industry’s earnings and capital.

You can view all previous Fast Facts at www.RoundtableResearch.org. Copyright © 2013 The Financial Services Roundtable, All rights reserved.

Filed Under Data & Research Tagged With data, Dodd-Frank, Dodd-Frank legislature, fast facts, The Financial Services Roundtable

Platform Shift in the Making

February 13, 2013 By Banking.com Staff 1 Comment

What does the banking industry as a whole have to do with Amazon, Microsoft and Apple? Just about nothing—and down the road, it may turn into a major problem (if it isn’t already).

Consider the many stories emerging from the realm of technology that have to do with financial services. Just last week, Amazon unveiled Amazon Coins, billed as “a new currency for Kindle Fire.” To launch the program, the company will dole out coins to customers (each coin is worth a cent), giving them essentially free access to apps and other services available on Kindle. The company can afford the generosity; late last year, it raised $3 billion through its first bond offering in a long time. Giving customers some free money is a great way to raise goodwill and popularize a new program that represents a new channel for transactions. For their part, app developers get another source of monetization.

See which industry is missing from this process?

Actually, the new “currency” is just the latest salvo in the ongoing battle between Amazon, Google, Apple and Microsoft to seed new apps on their respective platforms: Android, iOS and whatever mobile iteration of Windows happens to be in vogue. It’s not really about new software; it’s about creating mobile and other technologies that become increasingly embedded in the daily lives of consumers and business professionals everywhere. More apps, more users, more transactions, more money—that’s how it works. And at the core of this financially intense ecosystem will be. . .the technology platform companies.

In other words, it won’t be the banks.

The way these conglomerates (and it’s appropriate in this context to see Amazon as a technology provider) are driving app development is itself noteworthy. Each company is using a different model for the platform war, raising comparisons to everything from currency manipulation in China to ‘quantitative easing.’

For the record, it looks as if Apple still has a major advantage, thanks in part to being first to market with a smartphone and tablet. But few leads in the technology industry last very long. Kindle still has significant mindshare through its e-reader fan base, Google has racked up major partnerships for Android, and counting out Microsoft is often a mistake. (The company, which has at least as much in assets as Amazon, has been subsidizing developers to the tune of up to $600,000 per app for the Windows Phone, and the just-released Microsoft Surface Pro will likely have even more support, along with the massive user base for Windows PCs.)

We may also see more platforms emerge and find an audience. Facebook, which has already stirred interest with Facebook Credits, could yet become a financial services platform of its own, enabling consumers to pay bills and transfer funds when they go online to post a comment about a movie.

It’s not quite fair to suggest that banks are already irrelevant, but they may be in danger of getting to that point. The financial services industry has long been seen as the enabler for all other forms of commerce, which automatically brought with it a significant level of power. Is that power corroding?

If the role of enabler moves from banking institutions to technology platforms and the companies that own them, and the center of gravity shifts from Wall Street to Silicon Valley—a status some already crave—will that be a good thing?

We’ve commented earlier in this space how the two industries are dramatically different in their operating philosophies. New technologies considered “disruptive” win praise, while new releases from financial services providers that play the same role create instability and roil the markets. There are always new technology companies climbing into the upper echelons of the industry, while the top tier in banking seldom changes except through consolidation.

It’s not as if banks can’t handle technology—they have huge IT departments to run daily operations and regularly release custom apps designed to draw new business and ease customer engagement. But it may be time to go further.

Could banks do what Amazon did and release their own hardware? Should they partner with Apple, Google or Microsoft to gain more control at the platform level? Is it feasible to compete with those companies on their own turf and develop a banking-centric platform?

We don’t have the answers to any of this yet, but we may need some soon.

 

Filed Under Industry News Tagged With Amazon, Amazon Kindle, Apple, banking news, banking platform, Facebook, Google, Microsoft

Stability, Meet Innovation

November 1, 2012 By Banking.com Staff Leave a Comment

Think financial services and technology—the two industries have so much to do with each other, yet in some ways they couldn’t be further apart.

To see that strange level of symbiosis, you need look no further that the testimony offered by Paul Volcker, former chairman of the U.S. Federal Reserve, to a British parliamentary commission recently. In sum, Mr. Volcker is distinctly unimpressed by much of the “innovative financial engineering” found in capital markets these days. He believes that unless things change, financial institutions will commingle their accounts with the retail side of the business, and that will cause broad-scale problems.

Long lionized as an elder statesman of the industry, the former Fed chairman is widely credited with holding down inflation during his long tenure, and in that time earned praise (and some criticism for his regulatory stance) from both sides of the political aisle. Even in his ’80s, he led what was then called the Economic Recovery Advisory Board (now known as the President’s Council on Jobs and Competitiveness). Most famously, he is the force behind the Volcker Rule, a section of broader regulation that restricts U.S. banks from making certain investments that don’t benefit their customers.

So why is someone so visionary opposed to “innovative financial engineering?” This is perhaps where the chasm between technology and financial services is widest.

Think about it: Every corner of the technology industry thrives on innovation, and it is always understood that there’s a price tag attached. The new inevitably replaces the old, whether it’s a smartphone upgrade or an entire platform shift. In fact, ‘old’ is a relative term, since there’s always a next big thing or a new/new thing just around the corner. And we all want it that way; this is an industry where ‘disruptive’ technologies get complimented and bankrolled.

It’s not that the issue of regulation doesn’t come up occasionally—the government has certainly kept Microsoft’s lawyers busy for a long time with antitrust concerns, among other examples—but by and large new companies emerge by dint of merit and proudly take on a leadership position. That’s how it was with Microsoft, Google, Facebook, Apple and many others. Even the industry’s brightest minds have no idea what the next name in that pantheon will be; but you can bet that whatever technologies it offers will be not just innovative but disruptive. They’ll prompt (even force) everyone else to change, and that’s a good thing.

The one constant in all this change is that somehow, while the new gadgets and capabilities are always better and faster, they’re also cheaper. New companies and new technologies—all innovative, many disruptive—emerging on a regular basis, radically enhancing the entire landscape while cutting costs: How many other industries can we say that about? Financial services?

Well, these upstart start-ups couldn’t exist without financing, as the fine folks on Sand Hill Road in Menlo Park, the Flatiron district in New York and other hubs of venture capital can attest. There’s also tremendous risk involved; for every one Facebook that generates billions and changes the world, there are many that go nowhere. But still, the stark difference is the way the two industries operate (and are judged)—innovation and disruption is great in one and perilous in the other.

While there’s plenty of action at lower levels, most of the names at the top of the financial services industry pyramid have remained unchanged for decades. The only changes come when some conglomerate merge, or venerable companies go under through too many bad investments. For the most part, what we see now is what we’ve seen for a long time.

Mr. Volcker surely has a point about innovative financial engineering gone bad, but are there alternatives? Will stability in the financial services industry always mean essentially the same set of companies making cautious moves, while the technology side exercises rampant creativity to shift the paradigm regularly? Or can each industry learn more from each other?

 

What do you think? Let us know by tweeting at @bankingdotcom or posting in the comments below.

Filed Under Industry News Tagged With federal reserve, financial services, innovation, opinion, technology, volcker