What does the road ahead hold for bank risk managers? As 2015 winds down, I’ve been visiting many banks all over the world. During these conversations, several themes keep recurring, suggesting both opportunity and challenges for banks in 2016. Here’s where I see things heading next year:
- Expanding the onramp to credit. Finding new ways to serve the “credit underserved” is top-of-mind at many institutions, particularly in the US. The growth of alternative lending, combined with the desire of more traditional lenders to find new customers in a saturated market, appears to have created momentum for expanding services to many people who have not utilized mainstream banking products in the past.
- Caution ahead: rising interest rates. I don’t think rates themselves will be a big deal because the rise will likely be gradual. The bigger concern is the impact of a stronger dollar. This will cause capital to flow into the US. The question then becomes: how will that capital be put to work, and will it create some kind of bubble? Bank risk managers will have to be vigilant for warning signs.
- Regulatory roadblocks persist. In 2016, it’s unlikely we’ll see a single worldwide trend toward greater regulation as was the case after the Great Recession. Some countries are doing well; others are struggling. New ruling parties have come into power in several industrialized countries. The US presidential election is looming. Financial institutions would be wise not to make assumptions about future regulatory changes. Focusing on integrating current regulatory requirements into business processes is the safe, smart way to go.
- Alternative data crossroads. The emphasis on expanding the credit population will bring about more focus on alternative data. This will, in turn, drive far more discussion in the press and elsewhere on the merits of such data, and could even result in a call for more regulatory scrutiny.