Banking Industry and Effective Strategic Management
(Examples from US and German Banking Industry)
Banks are involved in the most volatile and uncertain business world. Banking history suggests, that banks suffered enormous losses due to lack of proper strategic management. Beltratti and Stulz (2009) observed poor and flexible management, and very low risk appetite which caused banks serious liquidity and financial issues. Banks are recommended to have strict management, and high-risk appetite in order to avoid any possible negative financial consequences. In banking industry, proper strategic management and its application and implementation is very important and integral.
In the United States banks are now under strict regulations where they are required to have special strategic management and organizational structure. US regulatory authorities learned through the financial crisis of 2007-08 and diagnosed problems in the banking industry. New regulations emerged after the crisis such as; Volker’s rule, implementation of risk and strategic management committees. In the Dodd Frank Act 2012, it was stressed and required banks to have proper risk management and strict managerial structure. It is assumed that if commercial banks respect current regulations and if they don’t get involved in securities without collaterals then it is highly possible that in the following decade, they would be able to control reasonably serious financial depressions. After the application of required regulations banking industry will not only gain more value but also would be able to influence positively the emerging banking industry worldwide. US banking industry has enormous influence on the global banking industry, therefore, strict implementation by US banking industry would facilitate rest of the financial industry to adopt transparent and secure financial mechanism.
The strategic management itself emphasizes on the change (internal and external) adaptation, but in real world, it is challenging to adapt changes according to prevailing markets (Agarwal et al., 2009). Therefore, banks need to restructure and reorganize their managerial structure under the light of new regulations. Regulatory authorities alone are not enough to implement the strategic rules but in need of concurrent banking cooperation. Banks need application as well as they should be ready to adapt dynamic and uncertain business and financial situations. Most of the countries in the world rely on poor financial system and are not willing to embarrass change. IAS, IFRS and Basel III encourage banking industry globally to cooperate in regulation enforcement. In addition to international regulations there are domestic regulations which sometimes are flexible due to improper implementation and corruption.
Prior to the establishment of any regulation or policy for banking or financial industry, regulatory bodies, take into consideration all possible positive and negative synergies. Therefore, after thorough studies, they establish banking and financial models for mentioned industries. The most important business elements in the banking and financial industry are application and implementation of International and Domestic regulations. Optimum board size, majority of independent directors, good management, presence of risk committees and strategic management committees are the key strategic factors in the success of banking industry.
Immediately after the financial disaster it was seen that proper implementation of strategic management and established rules by banking industry proved better performance and efficiency.
A comparative analysis of Deutsche Bank and Bank of America
Banks are in the business where risk and uncertainty are their main focal points. In the recent discussion, it is seen that banks need proper strategic management, as well as regular internal and external analysis. In general, banks play vital role in the global economy. Evolutionary banking industry made easier the business and individual transactions. Banks need regular change management as their daily business practices rely heavily on their attitude towards dynamic financial world. The financial crisis forced banks to have solid and strict management and high-risk appetite. The purpose to emphasize on banks’ uncertainty management is to highlight that, in the banks’ strategic management; the main emphasis is risk management and then corporate governance. Though in some developed countries like US, there are new emerging rules and regulations, but still in the developing countries an improvement is required, as they need to establish and implement solid managerial structure. It is also observed that poor corporate governance and flexible management lead to bankruptcy found in the studies by Erkens et al. (2012) and Fahlenbrach and Stulz (2011) as many US and EU financial institutions filed bankruptcies.
However, in order to have comparative analysis of two banks in the global banking industry, Deutsche Bank and Bank of America have been selected, as these leading banks have significant impact on the banking industry.
Deutsche bank announced its strategy for up to 2015 and beyond this year, where it emphasized on three main issues: capital improvements, profitability increases and risk reduction.
Deutsche Bank’s new profitability and capital targets and cultural changes are important internal resources for bond holders. In external resources, new regulatory requirements, and outsourcing play important role in the growth of Deutsche Bank’s overall performance. Deutsche Bank is one of the leading banks in the world, and first bank of Germany. It offers broad range of services and has high buffer against high market volatility and uncertainty. Strong research allows DB to strengthen its asset management. Beside all strong characteristics, DB lack proper asset management, and has higher expenses. Corporate banking and securities leave negative impact on investment banking performance. DB has the ability to expand through acquisitions, inorganic growth possibilities and buoyant asset management could allow additional revenues. All in all, DB has cut throat competition among financial institutions. Moreover, financial crisis, higher uncertainty and dynamic regulatory environment are major challenges for Deutsche Bank. Overall, it has competitive advantages in Europe and in emerging economies, as it beats its competitors with innovative financial products and instruments on competitive prices and keeps its identity and distinction.
Whereas, in 2011, Bank of America planned to use franchising to serve three different customer groups: consumers, businesses and institutional investors. The company believes that this customer focus will lead to higher revenues in the long run as it will help to retain customers. Bank of America has strong organizational structure and has enormous funds and networks to expand through franchising and branching. In external resources, it has sound sovereign support. Its current strategy fits well in the frame of its internal and external resources.
- Quote paper
- Muddassar Rasheed Malik (Author), 2012, The Banking Industry and Effective Strategic Management, Munich, GRIN Verlag, https://www.grin.com/document/452263