Cost and Value in Banks : A Model Fit for the Digital Era?

Retail and corporate banks have to cope with legacy issues that impede their efficiency and reactivity. In particular, different norms within groups are still used for accountancy, cost allocation systems and product hierarchies. Also, the share of IT spending used to maintain existing IT systems remains high. Yet, many of the banks' activities are being rapidly digitalised, especially in consumer finance. The potential of data analytics is being gradually unleashed at different stages of the products. In that context, regulators should favour the digitalisation of banks while alleviating related risks. They should also build on this mutation to raise consumers' welfare and the competitiveness of non-financial corporations (NFCs). Among these measures, the treatment of certain software expenses in the new Capital Requirements Regulation could be reassessed. Also, authorities should better foresee the cost of IT changes needed for implementing new rules and the indirect impact of those rules on banks' clients, especially SMEs. Further convergence in know-your-customer processes for NFCs is needed. The preventive approach in credit should be generalised to all clients. Finally, labour and education policies are key to ensuring a sufficient supply of IT skills