In 2007, as Lehman Brothers’ collapse set off a chain reaction throughout the banking industry, regulators began going down to banks to look at their risk exposure as they sought to get an idea of the potential damage that could be done. Something they should, arguably, have done some time before.
Banks struggled to put this information together, highlighting a complacency and malaise that likely exacerbated the problems of the crisis. Lehman Brothers’ collapse heralded the beginning of a new era of regulations, though, with Dodd Frank, which was introduced in 2010, and Basel III in 2011 among the most far-reaching and complex. Over $100 billion in fines have been paid in US for non-compliance since 2007, and with a new Republican-led regime entering power, it is unclear what the future holds.
The time and cost of regulatory compliance and reporting vastly increases with every new regulation. Regulatory bylaws must, by their very nature, be thorough, and many contain hundreds of pages of information. Keeping up with these causes additional stress to financial services institutions, at a time when new competition from FinTech is creeping up the sides.
Each new industry regulation and associated deadline creates an influx of new data that has to be stored and analyzed, and garnering insights from it rapidly is vital for streamlining, optimizing processes, and pinpointing any potential problems areas.
The Basel III framework, for example, largely focused on capital issues, ensuring that banks had the capital necessary to cope with any shocks.