A New Banking Concept

A new banking concept, but why a new bank, and why now? The banking industry as a whole is at an inflection point. Facing the challenges ranging from regulatory tightening, capital and liquidity requirements, funding gap and particularly the USD funding gap for some European banks, making the mundane task of servicing clients almost look like a secondary priority. In our view, the most daunting challenge is for banks to rediscover the very purpose of their existences, the utility function of a bank to service clients, communities and society. Strange as it may sound, the answer to this seemingly philosophical question holds the key to the answers of some of the most difficult technical questions as how to rebalance the unbalanced balance sheet, and consequently achieve a more stable and sustainable level of net interest margin.

While the urgency for banks to address this fundamental issue is apparent, in reality most banks are being pulled towards sometimes opposite directions simultaneously by different stakeholders. Shareholders still expect a healthy return, Creditors demand even more security to see their capital in safe hands, the real economy want the banks to improve access to lending, regulators want banks to prioritize risk and compliance governance, while most banks need urgently to repair relationship with customers, communities and society. As a result, banks and bank executives seem to have resolved to ‘make no more new mistakes’, thence also reduce the probability for meaningful reform and innovation. It is therefore not unlikely that we may have a smaller financial sector with much less influence and potential for the Netherlands after this crisis, not necessarily by choice, but by default.

To address these critical challenges, the banking industry needs to engineer changes from within as well as utilize external stimulants to induce innovation and reform. It is in this context that we have been asking ourselves this question: what if we can start from scratch, with the insight and without the burden, to design a new bank, how would we do it? Guided by insight of our own and driven by intrinsic curiosity, Standard Tael is working on a new banking concept that combines sustainability with scalability.

Key features

W hile most new initiatives focus on developing alternative business models often in the form of shadow banking activities timed to exploit the weaknesses of incumbents and designed to circumvent the regulatory hurdles, Standard Tael sees the process of engaging regulators and stakeholders and obtaining a license as a qualifying procedure. The very nature and identity of the New Bank as a Europe based and regulated bank is by design a key differentiating factor.

1 A new Retail & Commercial bank, licensed and regulated in Europe

2Community based, targeting customers deemed less “attractive” by high street incumbents, ethnic minority communities, ZZP’ers, Medical Professionals, eCommerce entrepreneurs, local communities that have a more complex risk profile and less stability in terms of client profitability.

3Over capitalized with high core equity ratio, conservatively funded and matched balance sheet

4No-frills offerings focus on the utility function of a bank, equal access and equal service attitudes towards all clients, proposition differentiation based on actual client needs rather than profitability of the clients.

5 Link product innovation with community development, funding program through dedicated savings products and specific investment funds for instance.

6 Direct channels only, without high street branches, instead a state of the art technology platform designed around behavioral preference of clients and communities.

7 Face to face client contact optimized through customized community activities organized at (Virtual) Community Centers by certified Community Bankers.

8 Embed "Asian Communities in Developed Economies" into the participation strategy and offerings aiming for sustainable growth into key geographical markets, and using this unique rationale to attract Asia-linked equity investors and creditors based on more sustainable level of expected return.

9 Modular add-on propositions particularly on the Asset side of the balance sheet to form a Europe based, Asia linked capital platform.

10 The concept targets growth segments in mature economies.

In short, a niche bank, which combines retail operations with a range of relevant East/West Asset activities, embedded and broadened access for future capital markets capabilities, with diversified funding structure and matching asset strategy.

Philosophy behind the concept

A s an institutional philosophy, the primary objective of our community contribution strategy is to enable individuals and to develop the communities in which they live to grow into sustainable, desirable, culturally integrated environments.

(Virtual) Community Centre, Certified Community Banker, Community Reinvestment Program are key ingredients of the New Bank’s strategy. The New Bank aspires to turn diversity (broadly present and largely under-utilized in mature economies) into real competitive advantages to develop, enrich and service communities.

How is this new concept relevant? And for whom?

Standard alone, the New Bank is a niche bank that focuses on growth segments in mature economies and the Asia/West trade. Connected to an established platform in the form of a European bank, it can be a growth generator for the established bank which holds a perpetual advantageous access to a number of the most promising emerging markets.

Connected to an established Asian bank, it can provide a viable business model for the Asian bank to build a sustainable international business. Therefore the New Bank concept Standard Tael is working on could be relevant for European banks that have an Asian ambition, and for Asian banks that have international aspirations.

Approach and where we stand now

To progress the concept into a real project, we need to prove it can work in a controlled environment. The Netherlands is an ideal launching place which can prove the feasibility of our concept. It is a difficult market for banks with relatively high cost for retail funding and thin space for interest margin, dominated by 3 main banks with homogenous profile for their domestic activities. The Dutch society has a diversified population and relatively open attitude and are not particularly happy with the current offerings of the incumbents. Unsatisfied clients often stay with banks due to lack of viable alternatives.

If our New Bank concept is proven to be able to generate economic profit in such a market, we have the confidence to project a high growth trajectory to expand into key target markets in other mature economies. We are in the process of developing the critical core of the concept, which is a balanced funding model with a matching asset strategy, and a risk management framework that is designed based on the outlined business- and Asset Liability model.