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Following the Global Financial Crisis (GFC, 2007-09),
national governments and regulators around the world have
drafted stringent rules to strengthen the banking system and
safeguard the industry. The current financial sector landscape
forces banks to adapt and evolve to remain profitable amidst
a tougher regulatory environment, sharpening their focus on
costs and performance. Pressure on profitability is compelling
many banks to close poorly performing service lines, and
ultimately cut jobs and reduce their oce footprint, the two
biggest operating costs. Banks are often under tremendous
pressure to automate and outsource functions that were
traditionally held in-house.
A number of banks are cutting space requirements in CBD
areas and shifting back-oce services to cheaper locations,
such as business parks in suburban areas. For example, in
Singapore, Standard Chartered Bank has consolidated its
footprint in Changi Business Park while reducing its presence
in Marina Bay Financial Centre Tower 1, and Barclays gave up
space in One Raªes Quay South Tower last year. In London,
several banking groups are subletting space in Canary Wharf
and moving to lower-cost locations following job cuts. Credit
Suisse has sublet nearly 300,000 sf that was occupied by
Bank of America Merrill Lynch after relocating 1,800 jobs.
Global financial institutions are already struggling under
intense regulatory scrutiny. Further regulations can only
mean that the landscape will be under intense pressure in the
coming years.
Tightening regulations post-GFC
The GFC proved that the then-existing rules were inadequate
to protect the banking system and highlighted the
vulnerability of financial institutions during catastrophic
events. However, the regulatory aftermath of the GFC has
taken a toll on the banking system worldwide, and coping
with the post-crisis environment has been a challenging task
for financial institutions in general. In the case of large-scale
multinational banks, adhering to tightened regulations is an
arduous process, often extending for years. It is critical for
real estate managers to understand these new rules and how
they impact the banking industry at large to gauge the e¥ect
on property and the workplace.
Post-crisis regulations can be broadly classified into three
categories: i) Capital & Liquidity ii) Risk & Reporting iii)
Governance, Organization & Reforms.
Higher minimum
capital standards, liquidity
and leverage
ratios help prevent defaults and help banks to continue
business as usual without government support. The latest
Basel regulations, agreed upon in 2010-11, stipulate capital
requirements of almost 12%, a six-fold increase from pre-
crisis levels (2%) for major global banks. This is an expensive
proposition which would reduce returns for shareholders,
increase pressure from creditors and thus force financial
institutions to streamline operations by cutting down on
non-profitable markets and service lines. Higher capital
bu¥ers and risk weightage for commercial real estate could
encourage banks, funds and insurance companies to shift to
other asset classes or products that o¥er higher return on
capital. On the other hand, these companies could continue
to lend at higher costs, thereby pushing up commercial
property rents and cap rates while bringing down capital
values.
Stress testing is another regulatory requirement in the
banking industry to manage capital levels. Introduced in
2009, this has become an e¥ective tool for regulators to
assess a bank’s capital adequacy, governance structure,
risk and preparedness. Repeated failures in these tests
could dent a bank’s reputation, adversely impacting the
management, and may push the bank to shrink operations
and/or sell assets to raise capital.
16 ASIA PACIFIC BFSI OUTLOOK 2017