Balancing the new, more constraining capital, leverage and liquidity requirements post-crisis is crucial to optimizing performance for financial institutions. This report summarizes a detailed survey conducted by the International Association of Credit Portfolio Managers (IACPM) and Oliver Wyman on Financial Resource Management (FRM) practices with 48 leading banks around the world to show how peers are approaching the problem. We build on the survey and our industry work to make further suggestions for movement towards better best practices.
Through the IACPM survey and follow-on paper, we have exposed the state of the FRM in the industry, and provided directional hints for you to solve the FRM puzzle. Each bank has a different starting point and specific FRM challenges. Your bank’s commitment, capabilities and culture will dictate the speed at which you solve your version of the FRM puzzleUgur Koyluoglu, Head of the Americas Finance & Risk and Public Policy Practices, Oliver Wyman
Effectively managing financial resources has always been crucial to bank economics. Before the financial crisis, the exercise was simpler: The universe of financial constraints was more limited, and the consequences of any sub-optimal decisions were less severe; capital, and especially liquidity, was readily available and in retrospect, relatively cheap. In the post-crisis regulatory environment, managing financial resources has become exponentially more difficult for banks.
Getting the answer “right” on FRM is essential to having an accurate view of a bank’s best use of limited resources and a thorough understanding of both absolute and relative performance of banking activities and products, and in turn, to enabling overall bank success.
In many cases institutions are reflecting certain new financial constraints in decision making in ad hoc and sometimes qualitative approaches. But the industry still needs to find systematic approaches to synthesize the costs of financial constraints to drive both central and distributed decision makingIlya Khaykin, Partner, Americas Finance & Risk and Public Policy and Digital Practices, Oliver Wyman