In the first part of this blog we saw that efficient capital and liquidity management is critical, especially in a limited-growth economy like today’s.
We also know that Bank Analyzer is a great piece of software than can help us to report and analyze the consumption of Capital and Liquidity.
Unfortunately, detailed reporting and analysis functionalities are not enough.
For instance; what’s the point of reporting in an “Integrated Way” that a Bank has lost 9 billion Dollars in a quarter?
This is not management.
Management requires planning and forecast, defining the strategic objectives, and aligning the resources of the organization towards those objectives, optimizing the resources consumption.
We all understand that there’s a huge solvency problem in the Financial System, but this problem is not going to be solved just by reporting the problem with more detail or in an integrated way.
As we’ve discussed here in the past, the exit strategy of this Financial Crisis will require efficient management of Capital and Liquidity, and the process will have two phases.
1) Cleaning the balance of insolvent banks, detecting and removing their problematic assets
2) Efficient management of Capital
Today, we’re still in the first phase, with bail-outs and public bad-banks acquiring toxic assets all over the world.
At the end of this first phase we’ll be in a new situation, driven by a new regulatory framework, which will make Capital a very expensive resource (Basel III Capital Requirements).
On this scenario Business Planning of the Bank will require a detailed analysis of Capital consumption by business segment, performance weighted by risk of the business segments, prioritization of the best performing and most critical business segments, etc.
If Bank Analyzer is the best tool for Capital and Liquidity analysis, there’s no better foundation for building a Business Plan than Bank Analyzer (or more exactly the Financial Database of the Integrated Financial and Risk Architecture).
But as I tried to reflect with this post, we have to educate the market in the new paradigm, and this is even more difficult than developing great software.
Looking forward to read your opinions.