A special report in The Economist looks at how banks are faring 10 years after the start of the financial crisis – how have Basel II, Dodd-Frank and fintech disruption changed the banking landscape?

The report – a series of articles – looks at how regulation has changed the banking industry, requiring banks to hold higher levels of capital (Basel III) and curbing the risks that Wall St banks are able to take (Dodd-Frank). The sector is also in the midst of grappling with new technologies and financial start-up companies, which are set to be a game-changer for banks. Some of the key points made in the article include:

Dodd-Frank

Although the US's House Financial Services Committee launched a Republican-backed proposal to undo significant parts of the 2010 Dodd-Frank Act, which the committee voted in favour of 34-26 last Thursday, the details of what will actually be amended are yet to be established. The Economist says that “nothing much is likely to happen soon”, but one idea touted by Trump’s chief economic adviser, Gary Cohn, is a return to some form of Glass-Steagall legislation to separate commercial and investment banking. There also seems to be consensus that the compliance burden on small community banks should be eased – one way to achieve this would be to exempt smaller banks from the Volker rule, which bans proprietary trading.

The Economist underlines the importance of maintaining stress-testing for systemically important banks, as well as the issue of using GAAP or IFRS to measure banks' leverage ratios – which can result in significant differences, depending on which accounting standards are used.

Basel III

The biggest US banks clearly feel that they are holding too much capital (Basel III requires banks to hold 6 per cent of tier-I capital but the Federal Reserve Bank also requires systemically-important banks to hold extra capital) and Jamie Dimon wrote that this is stunting lending to businesses and, therefore, the US economy. Basel III is not yet completed and it is now likely that completion will be delayed although The Economist notes: “Perhaps delay may be no bad thing: given more time, European economies and banks should become stronger, making agreement easier.”

Financial technology

Despite huge advances in technology and the era of smart-phones enabling round-the-clock connectivity, the Economist notes that banking technology hasn't moved exactly in step with the times: “banks’ information-technology systems are a curious mixture of the old and rickety and the sleek and modern.” This is of course an opportunity both for fintech start-ups and for cyber criminals.

Fintechs seem to be the big disrupter for banks. The Economist articles states that smaller start-up firms “are nimble, writing and rewriting code, testing and retesting products, discarding what doesn’t work and improving what does.” They have a clear advantage over much larger banks but the author acknowledges that banks are likely to embrace fintech developments and work symbiotically with start-ups: “This technology is still in its infancy, but with plenty of applications in the pipeline, banks should soon start to learn whether, and in what form, it lives up to its promise. Until then they have little choice but to pursue it.”