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Top 10 challenges for investment banks in 2015: Centralised or Federated (Part 6)

Beat Monnerat, Accenture's senior managing director of financial services for Asia Pacific | Dec. 18, 2014
For the seventh consecutive year Accenture outlines ten of the key challenges facing investment banks in the coming year. Welcome to day six of Accenture exploring a challenge.

There is still a debate as to whether a centralised banking model delivers more for the business or whether the greater flexibility and responsiveness of a federated model is more effective.

There are clearly benefits to both approaches, and it is vital for every bank to find the right balance for their business without adding unnecessary complexity.

Consider the benefits and drawbacks of each. Centralised models give greater transparency, provide opportunities to realise economies of scale and make it easier to enact enterprise-wide decisions and define strategies quickly.

While centralisation can be successful, there are limitations. Needless centralisation can yield greater complexity and inflexibility, and ultimately prevent the realisation of efficiencies.

Meanwhile, federated models enable different geographies or business lines to focus their IT and operations functions on their unique needs. They enable autonomy for individual business lines, but ultimately involve greater expense and complexity.

In Asia, as banks have expanded through acquisition, they are grappling with legacy systems that don't always connect. Others, growing organically, are less hampered by legacy systems. But both approaches to expansion afford opportunities to be innovative in developing IT platforms.

This may mean the best solution is to strike a balance. Deploying a hybrid combination of federated and centralised models is important in instances where market conditions or business units have unique requirements. For example, a bank may establish a centralised approach in its back-office, but set up federalized branch and front office operations.

A hybrid approach is required with deployment of centralied models for industrialization and use of federated models that are flexible to the idiosyncrasies of the business and the importance of time-to-market. Finding this balance is something investment banks must strive towards as they examine their operating models.

 

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