Strategic Planning Assumption: By 2013, the cost of regulatory compliance and risk management will have “priced” Tier 3 and Tier 4 U.S. banks from the market.
David Furlonger notes a combination of forces leading to this situation (Gartner customers see “Predicts 2010: Operational Technologies Present Threats and Opportunities in Banking and Investment Services”):
- Regulatory compliance and risk management costs are rising.
- Tier 1 and Tier 2 banks need to recapture and reinforce market share.
- Tier 1 and Tier 2 banks have already built systems and expertise to accommodate a complex regulatory environment, and to absorb future legislative demands.
- Tier 3 and Tier 4 banks lack robust systems, processes, knowledge and financial resources to meet those legislative demands.
The implications are that Tier 3 and Tier 4 banks will face pressure to merge with larger competitors due to their failure to make money and meet compliance needs.Customers will therefore face an increasingly limited choice of providers due to new legislatively defined markets. This will limit the number of providers by determining the number, variety and specificity of banking licenses, as well as the types of businesses and risk profiles that firms can adopt.
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