Giving credit where credit receives its due: An Interview with Marco Suter

RMA Journal, The,  March, 2002  by Nicholas Hayes,  Beverly Foster

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I would therefore focus most on strategic issues.

1. We must continuously align business and revenue ambitions with tolerance for risk. These can tend to move in different directions. Given our business and the nature of the risks, risk/return optimization is a concept that cannot very easily be employed. A number of interests have to be balanced, and we must make sure that our internal incentive schemes are designed and adjusted so that they always achieve the desired effects for the bank overall.

2. We are confronted with the problem of how to avoid risk concentrations in consolidating markets. More and more large transactions are shared among a small number of highly professional institutions. This leads to potentially increased systemic risk, and at the level of the individual institutions, we must make sure that such concentrations do not lead to undue exposures that could exceed the bank's risk-bearing capacity if they turned out to be problematic.

3. We have--together with other major institutions--advocated for the introduction of a more risk-based capital regime. The new Capital Accord is scheduled to take effect in 2005. It's essential to structure projects now that ensure e meet the high standards that we set for ourselves without losing sight of the costs that Basel II implementation will entail, not the least of which will be on the IT and data management sides. While 2005 seems far away, I believe this project will be much bigger than we originally anticipated.

RMAJ: There's always a good deal of speculation about the future of financial services. What kind of future do you see? How might this vary by institution size and niches? What will the global financial services industry look like in half a dozen years, and what will the role of risk management be?

MS: That's a difficult question to ask someone in risk control. We typically like to look at what we know, and we are not in the business of speculation--I leave that up to others. Our industry was subject to an unprecedented wave of consolidation in the past. While I believe that consolidation will continue, there is a limit to further "mega mergers." The world probably needs five to 10 truly global investment banks to fulfill clients' needs in complex corporate finance transactions.

A number of other significant changes in the banking landscape also are likely over the next few years.

* Pan-European retail banks may truly emerge, requiring further consolidation in the domestic market. Unless the domestic market has sufficiently strong players, local regulators will stand in the way of cross-border mergers, and a number of smaller regional commercial banks will be unable to survive in a more competitive environment.

* Wealth management is very fragmented and may see further consolidation over time.

* IT development and e-banking may have had a slower start than many of us anticipated, but these evolutions will certainly have an impact on the industry in the longer run.