The COVID-19 pandemic is a profound health and humanitarian crisis that massively challenges the financial and operational resilience of the global capital markets industry. Industry leaders need to stay on top of a rapidly changing situation and do what is best for their people, their customers and their organizations.
We believe capital markets firms should respond to COVID-19 in three phases: stabilization, reconfiguration and recovery.
The global capital markets industry is a highly interconnected and sometimes fragile ecosystem. Working with regulators, governments and trade bodies, industry players should collectively identify possible points of dislocation and react accordingly e.g. by providing funding and liquidity to ensure that the global markets, specifically the credit markets, continue to function effectively. Each underlying segment of the industry will have a critical role to play as a systemic stabilizer for its customers, its employees and their respective economies at large.
Capital markets firms will need to adapt to new priorities and reallocate resources accordingly. It is not yet clear whether any of the current changes will be temporary or structural in nature, but it is clear that there is a shift taking place from a time of sustained growth to an environment in which credit and market risk management, cost optimization and digital engagement will come to the fore as the global economy navigates a recession.
The industry emphasis will likely be upon innovation, development and implementation of solutions for liquidity and efficient functioning of markets. Individual firms, however, will need to ensure that their business models remain workable to survive and ultimately thrive in the post-crisis world.
Accomplishing this requires three things:
- Operational resilience delivered at scale. Across the board and up to now, the industry has stepped up, performed and been part of the solutions required to mitigate the financial impacts, maximize access to credit and capital as well as keep our world’s economies functioning. This crisis can, however, further accelerate the industry’s need to change and adapt. To thrive tomorrow, we believe firms should move to the technology architectures of the future. This call to action will separate the truly agile from those who might continue to suffer from an ever-increasing legacy technology burden.
- Leadership resilience. We believe the crisis puts a premium on leaders who regularly and candidly communicate to their employees and clients and make it clear what they know (and don’t know). In addition, the rising use of tools like video conferences is humanizing conversations and illustrates the radical changes across the pervasive digital engagement environment.
- Bending the cost curve, enabling the firm of tomorrow. Many firms are starting to face significant revenue and cost challenges, and they should respond by bending the cost curve to emerge stronger, faster and better than before. To do this, they can leverage new technologies – including applied analytics, artificial intelligence, machine learning and distributed ledger technology – to drive efficiencies, enhance productivity and improve resilience and competitiveness. We expect to see omnichannel and ecosystem strategies now more prevalent in retail and commercial banking to make rapid inroads into the capital markets sector.
The capital markets industry will play a critical role in enabling the flows of capital until this period of disruption ends. But, just as the industry needs to manage costs in the short term, it needs to lay the basis for long-term growth. Technology provides an opportunity for the industry to become more innovative and more efficient.
We expect to see leading firms drive new operating models based on differentiation, durability and cost-effectiveness. This could mean using analytics, intelligence and data to reshape sales, coverage and products. Or, it could mean delivering a compelling customer experience more cost-effectively, integrating operational resilience, leadership and client focus.
Experience shows us that modern global economies are inherently resilient and capital markets firms using technology to lower costs and support new business models could emerge from the crisis as stronger, more competitive players in a revitalized industry.
For more information, visit: Capital Markets Perspective on COVID-19: Navigating the Human and Business Impact.