The Capco Institute publishes the multi-award-winning Journal of Financial Transformation that delivers thinking to advance the field of applied finance. This is an independent publication, with no pre-existing policy, commercial agenda or constraints.
The risks facing financial institutions have evolved over the past couple of years. As well as the typical risks that financial services firms face, such as investment, regulatory, operational and economic risks, they are also confronting a genuine existential threat from new entrants that possess a much deeper understanding of how innovative technologies could be used to simplify the lives of clients, and at a fraction of the cost. These players are able to apply new business models to old industries – such as generating revenues from advertisers rather than clients – and are aggressively disruptive. There is no reason to think they will treat our industry differently.
Welcome to issue 42 of the Capco Institute Journal of Financial Transformation. As anyone who has read Douglas Adams knows, 42 is the answer to the problem of life, the universe and everything. While the exact question is still being computed, we will try to live up to number 42 in the following pages as we confront head-on some of the most innovative and technology-driven aspects of modern finance.
Welcome to issue 41 of the Capco Journal of Financial Transformation. In this issue we focus on the existential crisis embroiling finance. Our lead article, by Kim Wales, Regulation and cyberfinance: A new economic revolution liberating financial markets? Seeks to answer some of the questions driving this debate: What is currency? What is value? What is a business? What is a bank, even?
As we publish this 40th issue of the Journal, it’s fair to say that the intervening years have witnessed some of the most dramatic events in the history of finance, business and technology, including the evolving crisis that started in 2007. Although many of these events were unpredictable to say the least, we have always put innovation at the heart of our agenda. In issue 1 we predicted that “the true impact of the internet on businesses must be recognized... [its] primary impact has been to reduce barriers to entry significantly and, consequently, to curtail the ability to maintain competitive advantage over the long term.” We continue in this pioneering spirit in the 40th issue where financial transformation is the main topic.
Innovate or adapt? Strategies for the next wave of digital banking. Innovation remains a buzzword in banking. But how realistic are genuinely innovative strategies? In more cautious times since the financial crisis, isn’t it wiser to adapt in an incremental way to new regulation, competition, and customer requirements? We believe both innovation and adaptation are required.
What trends have dominated the banking industry since April? You do not have to look too far to see that opinion is sharply divided. On the one hand we have witnessed the return to healthy profits with many pundits arguing that banking has turned the corner and that we are seeing the first signs of sustained recovery since 2008. On the other, there are those pointing out that in spite of resurgent balance sheets, we are still in the middle of a fundamental transformation of the sector, where complex regulation is expanding with little or no end in sight; productivity remains below benchmarks set by leaders in other industries; and where investors remain skeptical – although some optimism is returning. All these themes are the subject this Journal issue given the lively debate about the future of the industry, we aim to uncover the real issues and the prominent solutions available to financial markets participants.
It’s already been an eventful year. From a new crisis in the Eurozone, to fresh controversies that continue to impact the reputation of the industry, risk continues to dominate and shape the world of finance. These issues require broad and bold changes in operating models and processes. At the same time we can’t forget that broad strokes also require detailed architectural and financial engineering. We hope that some of the detailed papers in this edition unravel the complexities inherent in any elegant solution.
This issue of the Capco Journal of Financial Transformation has a number of papers that deal with the problems of finance in a “bigger picture” context. We feature articles with high-level critiques of how the financial system is organized and operates; critiques on whole paradigms that are employed by a large part of the industry, such as econometrics; articles that explore the relationship between business models and regulation, the relevance of risk management techniques in systemically important banks, and the systemic role of credit rating agencies; and further contributions that examine general fractal and multi-fractal properties of time series, or offer an analysis of instruments that are directly related to banks’ capital policies, namely CoCo bonds.
Issue 35 of The Capco Journal of Financial Transformation highlights many of the topics that were discussed - under the overarching theme of Applied Finance - at the Capco Institute conference held earlier this year in New York, in association with Baruch College’s Zicklin School of Business. The latest edition of the Capco Journal of Financial Transformation brings together a number of relevant contributions to two themes, systemic risk and interconnectedness. We hope that you enjoy reading the articles in this issue, and that you continue to support us by sending us your innovative ideas.
We are pleased to provide you with the fifth anniversary edition of the Cass-Capco Institute Paper Series on Risk. As with previous issues, we have had contributions from an exceptional group of world-renowned academics and practitioners who focus on the major risks facing our industry and the possible solutions that could help overcome them.
Most of the articles in this edition of the Journal focus on two pertinent topics: increasing regulation and the complexities of integrating operations. We at Capco are investing heavily in our capabilities to assist forward-thinking institutions better manage the future challenges and opportunities. The tasks are many and the Journal, in its role as the medium of choice for the best thinking, endeavors to compile perspectives from both academia and industry. Most importantly, the Journal strives to work with the industry to ensure that this information is indeed executable.
This issue of the Capco Journal is dedicated to applied finance and focuses on the complexity of finance from a practical, and more importantly, managerial perspective. We at the Journal of Financial Transformation firmly believe that there is still quite a large gap between the research undertaken at leading finance academies, some of which has permeated into the real world, and what investors and borrowers need and apply. We believe that future research in finance should focus on what actually happens in the markets rather than what should.
This edition of the Capco Journal aims to introduce some of those ideas that we feel will be part of the foundations of tomorrow’s finance. A number of articles in this issue of the Journal question the accepted logic of academic finance and submit ideas that financial institutions and regulators could actually use in their work. This edition is consequently of immense value. It sets a new benchmark for the publication of future articles: the need for the ideas presented to be of practical use.
Welcome to the latest edition of our Journal. Why “the industrialization of finance”? Because post-crisis, as we re-build an industry that is ready for the opportunities of the future, we need to focus on the strategies and implementation that will help us all work more responsively, more efficiently, and in ways that shape the future of financial services positively and sustainably.
The articles in this edition focus on the major challenges financial institutions still face. Our authors critically examine whether the steps taken to prevent future crises are adequate, and suggest how new markets and instruments could and should be developed for our industry to remain successful in the future – and more importantly, to regain the trust of the world’s citizens.
This is the third edition of the Cass-Capco Institute Paper on Risk, a special edition of the Journal of Financial Transformation. This issue focuses predominately on the potential causes of the current crisis, the inadequacies of the current risk management models and systems, and the actions needed to prevent similar events from bringing the financial system to the brink of collapse.
This issue of the journal examines some of the criticisms that financial services firms, and the finance discipline in general, have faced in recent years and appraises some of the suggestions made about how the credibility of some of the models used and the industry as a whole could be rebuilt.
This issue of the journal looks at the challenges institutions face when integrating other businesses and the short-comings that the literature has in assisting management in their post-merger integration initiatives. In addition, the papers in this issue look at ways for integrating complex financial models.
This is the second issue of the Cass-Capco Institute Paper Series on Risk special edition of the Journal of Financial Transformation. The papers published in this issue cover risk issues ranging from financial to economic risk.