Blockchain technology has certainly attracted attention since 2014; from Bitcoin’s murky reputation and increased adoption, to the World Economic Forum paper published in 2016 pointing to the technology as one to revolutionize financial services’ infrastructure. Somewhere in between, the financial services industry has leapt into gear and an ecosystem is emerging that comprises incumbent banks and financial institutions, Fintech start-ups, peer-to-peer payments, and distributed autonomous organizations built on top of blockchain technology. The definition of disruption put forward by Clayton Christensen in 1997 has been built on and revised over the last two decades to describe a continuous and relative process. Certain methods have been shown to arm against disruption, in particular, business model innovation. This research is based on a series of interviews with high-profile industry players with the aim to gather insight as to how business models could change. The interviews cover insight from within highly regulated financial services, where process and entire markets are said to be disrupted, and outside of financial services, where new business models are emerging with the aim to reach new customers whose needs are not being currently met.
After the financial crisis of 2008, global capital market banks have been the focus of a battery of new regulatory initiatives coming from international organizations and national regulators. Assertive supervision, limitations on permissible activities, higher capital, and improved liquidity standards were intended to reduced systemic risk to the global financial system and make it far less likely that banks will need to be assisted by governments in the future. As a result of these changes, stability has returned to the global banking industry. But the regulatory measures combined with the slow global economic recovery have led to a prolonged decline in the performance of the capital markets business.

Indeed, the increased regulatory burden has rendered the banks themselves economically unviable and, therefore, considerably less safe than they were. Capital market banks, therefore, face the painful task of changing their business strategies and component configurations, a task that most have avoided addressing meaningfully.

This paper discusses the evolution of bank regulation through the financial crisis and demonstrates how it has affected the market leaders that have been unable for several years to achieve returns on equity equal to the cost of that equity, and whose stock prices currently average only 77 percent of book value. It also discusses the strategic change options available to the banks.