Navigating Capital Requirements

Barclays’ announcement last week of their decision to raise share capital and adjust asset levels to meet the new capital leverage ratio, following the Basel III and related reforms, brings home a message that holds true for many in retail banking these days: making sufficient profit will not be easy in the future. The Barclays’ target for just meeting the cost of capital has been pushed out to 2016, as reported in the Financial Times.

On the face of, at least from an investor perspective, retail banking looks like the oil tanker business: moves very slowly, does not change course easily and functions in very large homogeneous units. That said, there is another perspective. Zoom in and there is a huge amount of digital detail on the customer “cargo” in retail portfolios.

What’s more, risk/reward analytic models allow banks to know how much risk is carried and capital is needed for each drop of cargo and how it varies by drop. The digital detail also provides insight into how market pricing and costs varies by drop.

Maybe it’s time to take a fresh look at what retail banking could mean to investors in the future. Don’t get me wrong; retail banking is about the service excellence experience, but the digital detail and insight is needed to make the business complete.