Regardless of size, financial institutions can anticipate significant additional reporting requirements in a new regulatory landscape dotted with more agencies, stricter standards and increased monitoring. Regulators are expected to collect and analyze vast quantities of data to promote stability of institutions and the overall system. For both regulators and the regulated, this can represent significant additional costs in enhancing infrastructure and in data gathering, integration and analysis -- and some are approaching these new burdens with a sense of trepidation.
But within this challenge there may be an opportunity for some financial institutions to modernize their information technology and systems to go far beyond merely complying with expanded regulatory requirements. Firms should consider strategically investing in modernization of their operations and technology, areas that may have been neglected during the cost-cutting downturn years. Just like with expenditures related to Y2K and T+1 (for the securities industry), financial institutions now have an opening -- through initiatives focused on enhancing information management, analytics and collaboration -- to significantly improve their own risk management and revenue generation capabilities.
During the financial crisis, some firms were challenged in the assessment of risks and values associated with their businesses due to the lack of timely data and analytics about their largest customers, counterparty exposures and asset values. These legacy systems are likely to also inhibit opportunities for growth as the market improves. For example, despite years of recognizing the business benefits of having an overall view of their relationship with a customer, some institutions did not invest in capabilities to track their customers across a range of products. The firms that did may have benefited from their ability to retain customers during the crisis and its aftermath.
There may be other potential benefits for financial institutions as well: Improved risk and value monitoring can help to confirm the business is achieving efficient and profitable growth and can also allow sounder decision-making on the deployment of capital. Banks can leverage simulation and war-gaming technologies for recovery and resolution under stressful conditions -- such technologies can allow sophisticated scenario planning for high-growth opportunities. Already, several firms that have gone through early phases of recovery and resolution planning are reporting eye-opening opportunities for savings through simplification of operations and structure.
Duties have expanded for many banking regulators. For instance, the new Office of Financial Research faces immense challenges in tracking sophisticated financial products -- some that were not previously regulated -- in order to help prevent future shocks to the financial system, consumers and the U.S. economy. Many agencies face the opportunity to revise their relationships and interface with industry, using the latest technology capable of data standardization, extraction and complex event analysis. There may be variety of opportunities to improve data sharing and collaboration and to enhance the efficiency and effectiveness of the overall regulatory process.
For decades, regulators -- through their armies of accomplished economists and affiliated academics -- have produced cutting-edge research. This can be an opportunity to integrate this research into front-line supervision analytics to help improve assessment of financial institutions.
In short, both the industry and the regulatory world may be establishing a new order. This could be a cultural and regulatory climate change of historic proportions. It could also be an opportunity to significantly impact the overall financial services and regulatory infrastructure, streamline interactions and reduce inefficiencies and costs of the overall system. Financial institutions and regulators should be considering ways that IT investments could protect their stakeholders and provide enhanced information to them. The law is in place and the data requirements are headed in an unquestioned direction -- up.
Mitchell L. Glassman, the former director of the Federal Deposit Insurance Corporation's resolutions and receiverships division, is a director with Deloitte Consulting LLP. Ashish Midha is a principal in Deloitte Consulting LLP's financial regulatory practice. Both work with regulators in the financial services industry on Dodd-Frank-related challenges and overall technology issues. The views expressed in this article are their own.