Each issue, Kennedy Consulting Research &
Advisory (KCRA) offers a take on the current
state of the consulting profession
The 1980s and 90s were decades of dereg- ulation in financial services, but the 2008- 2009 global financial crisis definitely brought us into an era of reregulation. This is, of course, good news for consultants because the new regulations have a broad range of implications for banks, impacting everything from governance and account- ing to their investments and their pricing models. Toss in changing customer behav- ior and the rise of non-traditional, third party competitors in several traditionally bank-dominated product lines, and banks today feel like they’re under siege.
Which brings us to the Volcker Rule.
Named after former Federal Reserve
Chairman Paul Volcker, the Volcker Rule is a
part of the 2010 Dodd-Frank Act and is controversial for a couple reasons. First, it tries to
reduce the potential for conflicts of interest
for banks and their clients, and secondly it
separates the investment banking, private
equity and proprietary trading functions of
banks from their consumer lending units.
(Proprietary trading—when banks trade from
their own accounts for their own profit rather
than on behalf of clients—is seen as a major
contributor to the economic crisis of 2009.)
Banks see both of these provisions as
restrictions, which limits their ability to
make a profit in what are already extraordinarily lean times for banks. These rules
aren’t really new; the Depression-era
Glass-Steagall Act of 1933 maintained a
firewall between these functions for 66
years, until it was struck down in 1999.
But banks see another problem with the
Volcker Rule: The Federal Reserve recently
told them that they have two years, until
July, 2014, to become compliant with the
Volcker Rule—even though important parts
of the Volcker Rule haven’t been written yet.
Though technically already law, armies of
The Reality and the Opportunity
By Tomek Jankowski
Tomek Jankowski is a
Research Analyst of
Research & Advisory.
He can be reached at
on KCRA, visit
politicians, lobbyists and activists are still
waging battle for or against the Volcker
Rule, to the extent that as of early April,
2012, its very future seemed in doubt.
And then came the scandal. In early
May, 2012 J.P.Morgan announced it had
lost possibly as much as $2 billion in a bad
credit default swap bet. The scandal certainly gave plenty of ammunition to those
who championed the Dodd-Frank Act and
the Volcker Rule. While it is far from clear
what form it will take, the reality is the
Volcker Rule is now unlikely to go away.
Consulting firms, with their expertise in
shepherding financial institutions through
fundamental and revolutionary organizational change hold the keys to the solutions
for besieged banks, from back office operations to redesigning product lines and better
understanding customer needs, and harnessing the technology to tie all of this together.
There is a lot for consulting firms to do, and
indeed, the banking sector carried many
firms through the immediate dark post-2009
years when most other clients were slashing
But even more important, with any significant change comes significant opportunity—not just for consultants, but for banks as
well. While the process is painful, this is an
opportunity for banks to reinvent themselves
and their services, and to align themselves
with a very different market environment.
The message is that if a bank prefers to see
the Volcker Rule merely as an impediment, as
Big Government, then that bank is fundamentally missing the point and will likely be playing catch-up—or find itself the target of an
acquisition—in the near future. New regulations are a challenge for banks, but the real
challenge isn’t just in hiring more accountants
and buying new software; it’s in seizing the
opportunity of the challenge to drive change.