What Causes Profitability?

August 12, 2014
/   Spotlight

Digital Insight proves that digital bankers actually drive increase engagement and profitability with their financial institution.

Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Game On: The Chase for NFC-Enabled Mobile Payments

July 21, 2014
/   Insights

Banking is serious business for serious individuals and institutions. Financial services are for stable entities in thoughtful, analytical environments. This is real life for the real world. It’s not a video game. But then again....

Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Platform Shift in the Making

February 13, 2013
/   Insights

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 Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

When the Form Factor is the X Factor

March 4, 2013
/   Insights

Most of the discussion around technology and financial services focuses on software and related services—new apps and capabilities, upgraded tools for security, platform shifts in the infrastructure, etc. But there’s another angle that deserves...

Infographic: How to Spot a Fake Check

March 8, 2013
/   Insights

The team over at TROY pulled together an infographic on how to spot a fraudulent check. With more consumers using remote deposit capture to upload and deposit checks through their smartphones, it’s important to...

Paul Volcker has long been regarded as a giant in the financial services industry, and with good reason. He was likely most influential during his tenure as Chairman of the Federal Reserve during both the Carter and Reagan administrations, when he played a leading role in bringing down the rampant levels of inflation at the time. A generation later, he returned to the spotlight as chair of the Economic Recovery Advisory Board, a post he retained until early in 2011. His storied history also includes stints with the New York Fed and the Treasury Department, along with senior posts in the private sector at institutions such as what was then Chase Manhattan and investment banking firm Wolfensohn & Co.

In 2014, his name will probably be in the headlines again quite a bit, even if he personally doesn’t say much. That’s because right before Christmas, the American Bankers Association (ABA) announced plans to file a lawsuit challenging key portions of what is generally known as the Volcker Rule, a set of regulations that prevents many banks from speculatively trading with their deposits.

There are many interesting aspects to this developing imbroglio, not the least of which is that the ABA is leading the fight on behalf of smaller institutions, which it says are already concerned over possible repercussions. The harm to these vulnerable companies is described as “real, imminent, and irreparable.”

Of course, no one expects the challenge to end there. Some of the issues covered by the Volcker Rule, such as collateralized debt obligations (CDOs)—which are widely blamed for helping stoke the financial crisis of the last decade—are deeply embedded in the business practices of much larger corporations. If the new rules are not amended, it’s easy to see how many of these Fortune 100 conglomerates might throw themselves into the legal fray.

For the record, it’s far from clear exactly how these regulations will affect the industry, and it’s a matter of interpretation whether the Volcker Rule even prohibits banks from holding CDOs. However, many observers insist that it does exactly that, and some auditors are saying that without further guidance from the Fed (along with the FDIC and the Office of the Comptroller of the Currency, both of which are also named in the potential lawsuit), banks would be well advised write down CDOs, even if it means taking a hit to the balance sheet.

The regulations and potential lawsuits, while new, are in no way a surprise. There’s been intense lobbying behind the scenes for a long time now, but it was only in December that five federal agencies approved the final rule. That’s still left plenty of room for loopholes, hence the ongoing concerns and legal challenges. Besides, banks still have a solid six months to drop the questionable assets from their portfolios, and can subsequently apply for an extension. In other words, these are early skirmishes that help set the stage for more sustained assaults.

There’s also a broader question here that deserves attention. To many, Volcker represents a different breed of financial services veteran, a point he demonstrated during his appearance before a British parliamentary commission a year ago. “The economic and social value of much of the trading and innovative financial engineering is questionable,” he stated forcefully, adding that without regulation banks will inevitably intertwine trades for their own accounts with their retail businesses—a toxic brew by any definition. In this and other appearances, Mr. Volcker has voiced criticism of new financial instruments that disrupted long-held industry processes and practices.

As we noted on this blog at the time, those are exactly the characteristics that sustain and nourish the technology industry. Is there are way for the disruptive innovation of the tech world to be balanced with the stability required in financial services? As these legal challenges play out, we might get some interesting answers to that question.

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Compelling voices and contributed content from around the web

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp

James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.