The Bank of England’s excellent Quarterly Bulletin (latest issue out today) has a great teach-in on how banks allocate capital internally. It brings into sharp focus how complicated it can be for banks to comply with the multitude of capital and liquidity requirements.
A reminder, perhaps, of the key role regtech will play going forwards.
We’ve spoken before about how UK regulators are getting behind regtech - and capital and liquidity supervision is increasingly driven by data. We hear about how banks contend with fragmented and antiquated IT systems that don’t “talk” to one other and which prevent the efficient aggregation/analysis/reporting of data.
Regtech may well provide a solution (or multiple solutions - each bank’s capital allocation processes tend to be fairly unique). And looking at Deloitte’s latest "RegTech Universe", it's clear there’s no shortage of regtech companies looking to capitalise (if you'll forgive the pun) on an increasingly complex regulatory landscape.
It is useful for banks to understand the range of [capital allocation] practices and thus, consider how to evolve their thinking on a topic which has broad implications... it may encourage researchers and practitioners to develop new thinking. For example, more research is needed to ...shed more light on how banks should allocate capital, perhaps considering their business models.