Business Models and Banking Regulation Are Going Forward

The subject of the research is trends in the implementation of digital technologies in the banking sector. The relevance of the paper is due to the objective processes of global digital intervention of technologies in all spheres of human life and society. The research aims to identify, systematize and generalize key trends and regulations in the development of digital business models of banking services in Industry 4.0. For the first time, the authors identified and systematized modern trends and regulations in the development of digital business models of banking services in Industry 4.0, offered their own conceptual vision of the concept of “digital business model of banking services”. The authors apply general scientific, philosophical, analytical, statistical, problem chronological and historical-genetic methods, as well as methods of expert assessments. The article summarizes the main stages of the evolution of business models of the banking sector, reveals substantive and methodological differences between traditional remote banking services and digital banking, highlights the main business models for organizing digital banking; provides up-to-date data on the level of development of digital banking in the main geographic zones of the world; shows the dynamics and key areas of investment in the fintech industry in 2014–2019 and provides a critical analysis of their conditions; identifies problematic aspects of the development of digital business models of banking; describes the functionality of the main digital business models of Russian banks with the author’s assessment of their capabilities and examples of their use in Russian practice. The authors conclude that the main drivers of digitalization of the banking sector are stable growth of non-cash payments in the world and in Russia; stable growth of the global digital banking market; the impact of the COVID-19 pandemic on the active demand of consumers of remote financial services; increased competition in the retail banking market; and a significant decrease in margins for traditional banking products. Identification and systematization of trends and regulations in the implementation of digital business models of banking services can form the basis for further analysis of the specifics of digitalization and personalization of digital banking in Industry 4.0 for the sustainable socio-economic development of the country in terms of possible advantages and threats to the security of financial resources and personal data of customers.

Using data from Italian banks over the period 2011-2017, we study how negative interest rate policy and prudential regulation impact on bank business models. We report four key findings. First, banks shifted into retail- and market-oriented business models. Second, high- and low-deposit banks reduced loans and increased security/liquid assets; only market-oriented banks expanded lending. Third, interest rate income compression induced by negative rates has been substantial for the Italian banking system as a whole, although retail banks seem to have suffered less. Fourth, non-interest incomes played a compensatory effect. The portfolio reshuffling, as we observed for wholesale and retail banks (less lending and more securities/liquid assets), is related to the goal of reducing risk exposures and, in turn, the connected capital absorption required by prudential regulation.

With regard to conventional banking business models, a fundamental distinction can be made between major banks, retail banks, private banks and independent asset managers (Koye 2005a). Classically, the business model of a bank consisted of a price/performance configuration, which was usually provided entirely by the same bank. Only the independent asset manager focussed solely on providing customer advice and drew all other services from other banks.

This research investigates the impact of digital technology, via Fin-Tech challenger banks on banks' business models. Fin-Techs are exerting a pervasively disruptive influence on bank business models. Notwithstanding the obvious benefits, analysis in this area from high-income transition economy remains unexplored. The paper exploits this gap via a drop/pick-up survey questionnaire administered on a sample of all 68 UAE-Federation of Bank members. The results indicate that digital technology is transforming the banking ecosystem from classical competitive models to innovative bank-to-Fin-Tech collaborative models, where classical banking is disintermediated into multi-modal, multi-directional and smaller models, generating opportunities never seen before, more so for overseas banks from developed economies. The sample period is short if we consider the frenetic pace of technological change, which may compromise the extension of the results to a wider population. The paper contributes to research on bank models by providing insights on how classical bank models are being transformed.

Leverage Ratios for Different Bank Business Models

A System Perspective on Business Models

In this article I argue that banks continuously build new business models in financialised capitalism. Market value of these business models is regularly calculated and reported to the investors by investment banking expertise. What the US banking regulators, in their ex-post analysis, declared as unsustainable business models in the three failed banks – Silicon Valley Bank, Signature Bank, and First Republic Bank – in the Spring of 2023, had been promoted by equity analyst expertise as value-maximising ‘niche’ bank business models serving the disruptive technology start-ups after the Covid pandemic. The article argues that bank regulators’ power is severely constrained in financialised capitalism where stock market valuations of banks and equity-based remuneration of the executives are out of regulatory reach. Therefore financial stability mandate of central banks is undermined with significant risk to the society when business models of banks are legitimised by a financialised valuation regime that prioritises shareholder value creation.

Monetary policy and bank performance: The role of business models

Bank Business Models in Europe: Why Does it Matter for the Future of Regulation and Resolution?

The European Banking Package II finalises the implementation of the final Basel III standards, which the industry refers to as ‘Basel IV’. It entails many changes to the methods used to determine capital requirements and represents a significant challenge for the European banking sector. Based on the Capital Requirements Regulation (CRR) III draft, this paper provides an overview of the main implementation issues in the European Union, discusses the potential impact on banks' capital requirements and makes policy recommendations. This paper uses primary sources such as the Basel Committee on Banking Supervision, the European Banking Authority and the European Commission. Secondary sources, academic articles or analyses from various stakeholders are also included in the analysis. This paper also provides an analysis of the impact of the new prudential regulations on banks based on 30 detailed Basel IV impact studies conducted over the past two years in consulting projects with banks from almost all EU countries. The impact analysis covers a wide range of different business models, bank sizes and countries. We believe the anonymised data we use is far more representative of the EU banking system and other jurisdictions than the impact studies performed by the European Commission or the BCBS. The new CRR III regulations will pose strategic, operational and regulatory challenges for the banks concerned. The paper concludes that the European implementation of the reforms will not burden a specific group of banks, but banks with different business models and of different size will be impacted differently but still significantly. This makes Basel IV and CRR III unique compared to previous reforms of the Basel framework. The EU Commission's goal of proportionality of regulations will not provide much relief in this regard. The paper provides an up-to-date and comprehensive overview of the planned changes in CRR III, ie in capital adequacy requirements. It analyses the implementation of the standards and compares them with the Basel IV requirements. Recommendations for supervisors, risk management practitioners and other interested parties conclude the paper.

This paper aims to examine some significant implications of the new European single banking supervision for the economics of banking and the market of financial services. It is one of the three pillars of the European Banking Union architecture, as part of a longer-term vision for further economic and monetary integration in EU. The new supervisory mechanisms implies a huge and complex transfer of powers from national authorities to the European Central Bank. It aims to ensure the safety and soundness of the European banking system, to increase financial integration and stability, and to permit consistent supervision. Banks are being held to common supervisory standards. The structure of this paper is as follows. Section 1 introduces the paper and outlines the general context of the study. Section 2 analyzes some organizational and regulatory issues of the single supervisory scheme. Section 3 examines the comprehensive assessment of the main banks performed by the European Central Bank together with the national supervisors. Section 4 discusses the implications of the single supervisory mechanism for banks' business models and management, and explores some of the challenges likely to be faced by the supervised banks. This section also sheds some lights on relevant drawbacks of the single prudential supervisory approach. Section 5 concludes.

Russia's banking sector demonstrates the decline in the growth rate of the liabilities in the context of increasing need for credit resources of the real sector of economy and the population. This trend of the market contributes to the possibility of liquidity constraints which the financial system may face. The problem of the banking sector in expanding the resource base is also exacerbated by uneven distribution of liquidity among individual credit organizations. The article discusses the business model of a commercial bank, which allows achieving the desired level of profitability in the non-market conditions of the banking system development.

Sustainable finance has become a common lexicon of both supervisors and financial institutions in the last years also due to the COVID-19 crisis. Undoubtedly, the application of ESG (environmental, social, and governance) factors is currently designing a new strategic perspective, a new approach to business usually named “sustainable”. The paper’s research problem is related to the reengineering of the bank’s business model on sustainability. Integrate ESG factors within the decision-making process will not be enough for the European financial sector; it will be strategic that European authorities and regulators also ensure incentives in this direction. In this perspective, the paper has the purpose to answer the following questions: “How sustainable the business model of cooperative credit banks is and how they are ESG oriented?”, “What are the possible ways, in the prudential framework, to foster a higher attention to the ESG paradigm, in the bank’s business model?”. The research methodology used analyses of a) the main features of cooperative bank systems and the sustainability of their business model and the conceptual benchmark framework used by EBA in the 2020 survey; b) the case of Iccrea Sustainability Framework. The contribution of our paper is manifold and likely to raise the interest of policymakers. Our argumentations and conclusions are likely to contribute in terms of recognition of the sustainable business model also in the prudential framework in the current COVID-19 economy.

The authors argue that the elephant in the room on bank risk is their business models which are largely untouched by reform. They contrast traditional deposit banking from models based on multiple collateralised counterparty agreements, where derivatives and structured products funded via securities transactions cause contagion risk—including adverse valuation shifts and/or defaults at various points in the hypothecation chains. Balance sheets of actual banks during the crisis and the size of derivatives transactions are used by the authors to illustrate these issues and they document bank losses which, despite all the support, are sobering. The authors argue that the underpricing of this risk (helped by credit ratings) was the core of the crisis and the AIG insurance debacle is shown to be one of its most dangerous events.

The Wolves of Wall Street? How Bank Executives Affect Bank Risk Taking