If there’s one thing we learned from acclaimed TV series “The Walking Dead”; is that a blow to the head is what it takes to really kill a zombie. Sadly, the same can’t be said when it comes to Zombie Banks.
First off, Zombie banks are those financial institutes that rely on their government to survive – in many cases – in the form of corporate bailouts or other forms of taxpayer-backed credit support. These banks would not survive otherwise due to their large number of non-performing assets which result in having an overall negative net worth. Owing to the bad debts they carry, their liabilities are greater then their assets; and as a result, they are unable to perform as normal banks should, they are not supporting the growth of the economy and are costing taxpayers a lot of money.
Nevertheless in some cases, these banks are kept on life support, staggering around between the world of the living and the dead, because they are “too big to fail”. Governments would either pump investments or work with the Central Bank to promote schemes that encourage these banks to lend to consumers and businesses in an attempt to cover their losses. Lowering interest rates to lower the cost of funding is also another means of survival.
Despite all that, creditors will keep coming because they believe that their government will continue to support it. Until it doesn’t. One such instance in recent years is the Ex-Im Bank in the US.Established in the 1930s to promote US manufacturing during the Great Depression, it has continued to have this purpose ever since, even though US exports are hitting record highs. The decision to dissolve this zombie bank in 2015 was one among many other smaller banks in the US facing similar insolvency problems.
Another recent example is one of Europe’s largest Investment Banks which reported €256 million in profit for the first half of 2016; an 81% decline for the same period in 2015. Although having bounced back as the year closed; shares remain at an all-time low and there are indications that if it remains weak and facing new regulatory fines, this bank may require assistance. At present, the government of this bank denies reports that they are working on a rescue plan and confirms that there are enough assets and capital to stop it from going bankrupt, which has helped ease worries.
In an attempt to circumvent these situations, the FDIC (Federal Deposit Insurance Corporation) in the US; the organization responsible on evaluating the viability of the Banking market and ensuring that bank deposits are safeguarded; are keeping a list of what they call “Problem Banks”. Banks on this list have serious deficiencies with their finances, operations, or management that threaten their continued solvency. Once a bank is included on that list, they are subject to closer regulatory scrutiny. They can also expect to receive instructions from regulators about what steps must be taken to rebuild their financial strength. In 2012 alone, a total of 51 banks with total assets of $12.0 billion failed, costing the FDIC Deposit Insurance Fund $2.51 billion in losses.
So the question that I ask is how technology can also help reverse the state of a bank in this situation. We have never seen a Zombie on the silver screen recovering from this ferocious virus; and that’s probably for good reason. The hope now is to save others from this horrifying fate. It’s Problem Banks then that Digital Transformation can be deemed as a viable vaccine.
If you look at it banks fail due to shortcomings in mainly three areas:
1) Risk: When there is a question about the viability of a bank’s long term assets from which it earns its income, there is also a question about whether this bank is able to fulfill its commitments to its customers.
Banks who employ Data Science are able to mitigate some of those risks by understanding the trends occurring in their market space.
Understand the data at hand and you rise above competition and be able to devise self-adjusting strategies that can guide your salesforce through the turmoil.
Data Analytics helps banks to build data models to measure the performance of the companies they invest in against the changes in their respective industries; allowing them to make the right lending decisions.
2) Fraud: Suspicious activities happening under the radar not only hurt a bank’s ledger but also its reputation. Fraud detection technologies can provide the proactiveness of identifying these trends before their full damage takes effect. By creating collections of data (structured and unstructured), integrating it with the bank’s systems for added accuracy and then analyzing it; you can have an enhanced view on any client engagement that does not follow policy.
Add to that the ability to perform social mining and you get a new dimension into uncovering new data patterns that can support a bank’s anti-money laundering activities, but also identity fraud and insider trading.
3) Regulation: Recent financial regulations such as Basel III & GDPR, impose new information management practices to be put in place to ensure the quality of a bank’s data. In the case of Basel III, it scores the bank based on its data availability, completeness, quality and consistency. This data can pertain to customer transactions or wealth management activities; it can be living in core systems or legacy applications waiting to be sunset. Failure to properly aggregate this information and produce the necessary regulatory reports, undermines the bank’s capability in healthy survival in its market.
At the end, Digital Transformation is ever growing with healthy banks and is being heavily invested in. The question is why is Digital still not considered as an imperative survival strategy for Problem Banks? If you want to survive the apocalypse, start identifying areas of failure in your operations and apply a proper dose of Digital.
Remember these banks need your money to survive and not your