Financial institutions around the world are feeling the impact of increased capital requirements on certain business lines, with 25 percent exiting these businesses, according to the fourth annual survey by the Professional Risk Managers’ Association (PRMIA), which was co-sponsored by SunGard.
According to survey respondents, the introduction of central clearing is expected to result in lower margins, increased collateral requirements and a general increase in the cost of doing business in areas such as OTC derivatives.
The survey was sent to PRMIA members around the world. Respondents were evenly split among the buy side, sell side and consulting firms (25 percent each), with the balance made up of regulatory bodies and government institutions (7 percent) and other types of firms. A total of 170 surveys were completed.
Twenty-five percent of the respondents to the survey have withdrawn from capital-intensive businesses, while 58 percent admit that they are more selective when undertaking such business. Eighteen percent say they would pass on extra capital costs to clients.
Other key findings include:
Dr. Bob Mark, member of PRMIA Board and PRMIA corporate treasurer and managing partner of Black Diamond Risk Enterprises, said, “The joint SunGard and PRMIA survey provides deeply useful feedback into risk management practices of international institutions. The survey feedback is particularly worthwhile in light of the rapidly changing risk adjusted return dynamics that are shaping the strategic direction of the global banking system. The results also enable institutions to benchmark the quality of their own risk management practices in relation to central clearing and valuation adjustments, rules and regulations, and models and measurement.”
Dan Travers, director of product management for SunGard’s Adaptiv business unit, said, “As banks begin to fully appreciate the impact of initiatives that were previously confined to silos in the risk management, front office or the exchange margining worlds, risk managers should have an increasingly direct impact on the bank and its business model. Buy-side firms are also starting to feel the pressure to implement risk management practices that were previously the domain of their sell-side counterparts. SunGard is helping both types of firms comply with the latest regulations and strengthen their risk management practices.”