Risk Considerations for Financial Institutions as Regulations Evolve

A lingering question over the recent collapse of banking institutions remains. Could regulators and policymakers have anticipated the issues at these banks sooner and avoided the collapse?  And perhaps a bigger question for financial services companies is how will this collapse impact what regulators do next.

Ever-changing banking regulations

Banking regulations are constantly evolving.  According to Deloitte’s 2023 banking regulatory outlook, we can expect federal bank regulators to look at the factors that disrupted the 2022 industry such as inflation, interest rate volatility, the Russia-Ukraine conflict, crypto-asset markets, and of course we now need to add recent banking collapses to the list.

It seems logical that banks of all sizes should be expecting increased regulations. But many banks are struggling to meet the current regulations and it’s natural to expect that post-collapse, regulators could increase the enforcement of current regulations.  

How should you prepare for potential new bank regulations?

While it seems difficult to predict the specifics of new regulations, we believe that many new regulations will fall under the theme of visibility and transparency. Regulators need easy access to information. If an institution wants to avoid the reputational risk that could result from increased regulatory scrutiny, they need to stay ahead of potential rule changes. If you focus on visibility and transparency, you can find (and hopefully fix) vulnerabilities before the regulators find them.  

5 risk considerations to stay ahead of regulatory changes

Here are 5 questions we recommend every financial institution ask themselves to understand their regulatory risk today’s environment, particularly as it relates to visibility and transparency.

1. Where do your business-critical processes live?  Do you have business-critical processes in siloed spreadsheets or within a cloud-based ecosystem?  Do you even know where these processes live? Understanding this is the first step to creating more visibility and transparency.

2. What level of control do your spreadsheets have? Financial analysts and modelers love Excel for its flexibility in defining complex business logic, but Excel’s lack of controls and trackability have long been cited as serious risks.  

3. Do you have a single, integrated view of your risk profile?  Are your models for assets, liabilities, and deposits connected in a single place or are they disconnected?

4. Can you rapidly stress new scenarios? Do you have the ability to understand what-if scenarios, such as the impact of increasing rates on assets and liquidity? Do you have the transparency and scale to quickly and efficiently test the impact of many different financial situations?

5. Are there current regulations that you are not meeting? If your bank met the thresholds for the same regulations that the largest banks face, would you meet them? Do you have the visibility to even know if you could meet them?

If your bank lacks spreadsheet control and visibility, what is the solution?

If your answers to the questions above included siloed spreadsheets with no control, integration, or visibility, you are not alone.  It’s been difficult for finance organizations to move away from Excel largely because staff are often resistant to abandon it.  But there is a way to add control, integration, and visibility to your existing spreadsheets without an intensive enterprise software implementation.  

Platforms like Coherent Spark convert complex spreadsheet-based logic into no-code workflows in seconds. Your team can build, model, and test directly in the Coherent platform or connect the workflows to a broader, integrated solution.  

Need to get ahead of potential bank regulations?  

There’s no question; regulators are going to demand visibility, control, and transparency for business-critical processes. While moving to an integrated, cloud-based process may sound difficult, it doesn’t have to be. Coherent Spark enables you to use Excel for its intended purposes while eliminating its inherent limitations. To learn more, explore our free sandbox to turn your own spreadsheet models into enterprise-wide code in minutes.

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