In the United States there are around 7000 banks and based on their asset size these banks are categorized as small, medium and large. Regulatory impact on these banks has resulted in various internal developments and changes. Let us take a look at the regulatory impact on large banks.


Who are Large Banks?

money-case-163495_640Categorizing banks on their size can vary but more commonly accepted measure is the $50 billion asset threshold. Bank holding companies (“BHCs”) with consolidated assets of more than $50 billion can be referred to as large banks. These banks play a big role in controlling assets of the banking industry. Five of the large banks (JPMorgan Chase & Co., Bank of America, Wells Fargo, Citigroup and US Bancorp) control almost half of total assets of the U.S. banking industry (44% of $15.3 Trillion assets).

Large Banks facing Regulatory Compliance Challenges

Large banks face several challenges, one of them being regulatory pressure. They need to spend considerably on compliance and invest in systems that help them keep up with the dynamic nature of regulators.

Two main challenges large banks face are:

  1. Data & Reporting Challenges
  2. Resource Challenges


Data & Reporting Challenges

Banks have to submit numerous reports to various regulators. Here are some of the common challenges they face while doing so.

  1. Inaccurate Data: Erroneous sourcing and consolidation of heterogeneous data makes the data inaccurate.
  2. Inconsistent Data: Repetition of the same rules for different reports through multiple touch-points increases inconsistency in the data.
  3. Regulatory Changes: Numerous and frequent changes makes it hard to keep track of the ever-changing requirements of the regulators.
  4. Data Lineage: Inability or huge complexity to validate reports down to the transaction level. This in turn increases inefficiency in carrying out audit trails.


Resource Challenges:

Large banks have been spending a significant amount of money for dedicated resources. Some of them are also spending considerably on advisory and consulting.

According to a survey conducted by Longitude Research & SAS,

  1. Citigroup expects to have around 30,000 employees in the regulatory and compliance department.
  2. JPMorgan Chase is expected to expand its risk control department by 30%
  3. Deutsche is expected to add 500 additional resources and spend double the amount on compliance.
  4. HSBC announced plans to add 3000 staff in the compliance department in 2013.


C-level Executives talk about the regulatory impact on large banks:

  1. JPMC CEO Jamie Dimon stated that 13000 staff were to be added in the compliance department by end of year 2014. Link
  2. Goldman Sachs CFO Harvey Shwartz said “the compliance burden is pretty intense.” Link


Fines Paid by Large Banks:

Banks have been paying fines worth billions of dollars to the regulators. Since the 2008 financial crisis, global banks have paid $162.2 billion in fines and legal settlements with US regulators. Barclays were hit with $800,000 fine for U.S. data reporting errors. Bank of America Merrill Lynch was fined $20 million for reporting failures. Deutsche Bank was hit with a $2.5 million fine over swaps reporting.


In addition to these challenges, large banks have to go through stress tests to make sure they have adequate capital to consume unexpected losses and continue to lend money to the consumers/ businesses. Comprehensive Capital Analysis Review (CCAR) is a regulatory framework that helps supervise, assess and regulate the Bank Holding Companies  (“BHCs”). It ensures that large BHCs (consolidated assets of $50 billion or more) have enough capital to continue their operations through times of financial stress.


How can Hexanika help?

Hexanika is a RegTech big data software company, which has developed a software platform SmartJoin, and a software product SmartReg™ for financial institutions to address data sourcing and reporting challenges for regulatory compliance.

The automated nature of SmartReg™ keeps regulatory reporting in harmony with the dynamic regulatory requirements. SmartReg™ keeps pace with new developments and latest regulatory updates, thereby catering to market needs efficiently.

Contributor: Anand Ranade



2 Comments. Leave new

Leave a Reply

Your email address will not be published. Required fields are marked *

Fill out this field
Fill out this field
Please enter a valid email address.
You need to agree with the terms to proceed

41 − 40 =