In the decade since the financial crisis of 2008, US banks have struggled to balance their portfolios and find stability as US economic conditions remain volatile and unclear. As the financial sector attempts to transition from crisis to growth, banks are facing a variety of new issues and challenges. In this article, we’ll explore the various banking concerns that have shifted from crisis to growth woes, including regulatory pressure, depleting lending power, and the expanding digital revolution.

Regulatory Pressure Puts Banks in Tight Spaces

Since 2008, financial regulations have bombarded US banks, making it difficult for them to maneuver. Regulatory pressure has become increasingly burdensome as annual costs related to compliance nearly tripled, hovering around $80 billion as of August 2020. In addition, banks are facing more stringent capital requirements that raise their costs and limit their ability to lend, generating an environment of caution in the sector.

The trend of rising regulatory pressure has pushed banking into a tight space, forcing institutions to reconsider their strategies and assess the potential risks of increased compliance. In turn, banks have had to continually monitor their business to ensure they are meeting regulator’s mandated requirements and expectations. This has become a major cause of worry for the banking sector, significantly shifting the banking system’s focus away from growth-related investments, such as strategic initiatives and new product development.

Depleting Lending Power

The banking sector’s lending power has been slowly declining as banks face a lack of liquidity in the market and stringent risk assessment requirements to guarantee loans. The US banking system has over $10 trillion in assets, but only $2.2 trillion of those assets are in liquid form, meaning banks are unable to quickly convert those assets into cash. As a result, the ability to lend money and make loans has decreased, further impacting their growth opportunities.

Increased Credit Card Debt Compounds Struggles

Personal credit card debt is currently on the rise, putting pressure on lenders’ balance sheets and adding stress to their credit scoring practices. According to Experian, the average credit card debt per borrower in the US reached a high of $5,700 in the second quarter of 2020 – which has been the highest number recorded since 2006.

Banks are now facing pressure to increase the number of debt collectors, as well as the extent of their collection and recovery departments. Increasing debt collection practices can affect how banks view and value troubled customers, raising default rate risk for lenders and causing their portfolios to suffer.

The Rapid Expansion of the Digital Revolution

The digital revolution has been a major force in banking’s shift in focus from crisis management to growth. Although the crisis itself pushed banks to modernize and adopt digital solutions, the continued move to online banking and digital solutions has presented competitive and financial stability issues. In order to stay competitive in today’s digital-first society, banks need to invest in the technologies and solutions that will help them stay ahead of the competition and meet the expectations of both consumers and regulators alike.

At the same time, this rapid digital expansion is also creating difficulties. With reduced liquidity, banks are facing difficulty in financing their digital investments, as well as managing all the data and platforms generated by these new solutions. Furthermore, banks need to ensure that their customers are comfortable with the introduction of new technology, as well as the safety and security measures associated with technologies such as artificial intelligence and machine learning. All of these challenges are becoming greater concerns for US banks and causing them to shift further away from investments geared toward growth.

The US banking system is at a critical juncture, facing heightened regulatory pressures and a lack of liquidity in the market, as well as the growing pressure from the digital revolution. In order to stay competitive and continue to grow, banks must manage the demands of the contemporary banking environment while ensuring they are compliant with all regulatory frameworks. Although these challenges are creating dramatic shifts in the banking system, both lenders and consumers still have plenty of potential to overcome these obstacles and find success.