The world’s tightest regulated banks

Bank shareholders hoping that profits will rise rapidly in the quarter ahead are likely to be disappointed.

The various constraints placed on banks after they were saved from bankruptcy at the cost of increased social inequality and poverty will limit the financial institutions’ earnings.

Regulatory pressure on banks keeps increasing around the world, in the wake of the financial crisis, a recent survey by KPMG shows.

Banks in North America are feeling most of the regulatory pressure, followed by those in Europe, Middle East and Africa, while those in Latin America and Asia are more relaxed, according to the survey.

Since 2011, when KPMG started its “Regulatory pressure index,” it gradually rose to 39 this year from 33.7.

Regulatory pressure on banks

Regulatory pressure on banks has increased. Source: KPMG

Banks in North America were the world’s tightest regulated this year. They had the highest score, at 43, followed by banks in Europe with 42. Latin American banks scored 33 while those in Asia Pacific were the most relaxed, with a score of just 31.

The survey is part of a report on regulation by KPMG first quoted by “Spontaneous Finance“.

Regulatory pressure on banks has increased over the past year in North America and Europe in the areas of capital, culture and conduct, supervision, and governance. There was less pressure in the areas of remuneration and accounting and disclosure.

KPMG warns that the increased regulatory pressures on banks will leave many struggling for profitability.

“The headwinds of the costs of past misconduct in both retail and wholesale markets, and the myriad pressures to increase IT expenditure, do not make it any easier for banks to secure a viable and sustainable future,” the report says.

Rating agency Scope was among the first to warn that the risk of litigation was still a big unknown for banks, especially in Europe.

Banks have set aside billions to cover the costs of various scandals, from misselling retail products such as payment protection insurance to international financial markets rigging scandals.

US banking analyst Richard Bove, of Rafferty Capital Markets, has argued for years that American banks have in effect been “nationalised” by the new regulations.

“The banking supervisory apparatus put in place the mechanics; the Federal Reserve set the rates; and the money flowed to the government at historically low cost,” Bove wrote in research at the beginning of April.

“All this was done in the name of safety and soundness. It is possible, however, that safety and soundness would have been better served by allowing the banks to fund the private sector, instead of the government.”

Almost eight years after the start of the worst financial crisis since the Great Depression, banks divide society more than ever.

It is what happens when market rules are tampered with by governments and regulators keen to protect loss-making institutions and prevent asset price bubbles from correcting in order to keep political costs to a minimum.

The KPMG study is just another piece in the puzzle that is beginning to show what the future looks like for the financial sector: much lower profitability, increased regulation (although not necessarily of the useful kind) and continuous cost-cutting.

This in turn will affect the global economy – so the International Monetary Fund’s warnings of a long period of stagnation are not wide of the mark.