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Stability of Banking Teams Called into Question

International companies are increasing expectations of financial partners.

A recent study suggested global corporations are starting to doubt the functionality and sustainability of their core banking teams. These leading enterprises are questioning banks' financial performance and risk profiles after the financial crisis of 2008 reflected poorly on the industry. Despite the recession having slowed in the United States, global corporations continue to deal with the struggles in the eurozone. This is prompting more intense examination of banking teams to protect against another downturn at the hands of the financial sector. The increased scrutiny has resulted in higher expectations for banking teams than in the past, as well as less patience when the banks fail.

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Corporations Want More Information 
Ernst & Young's Successful Corporate Banking report found 63 percent of corporate executives are highly satisfied with the service they receive from core banking teams, yet remain doubtful about their ability to meet heightened expectations, particularly focusing on a number of performance criteria. In the search for more in-depth insight into banking partner performance and functionality, corporations are also monitoring bank risk profiles, which forces the financial sector to increase transparency to maintain these partnerships.

The study showed 79 percent of executives said stability and financial performance are the main criteria used to select banking partners. Sixty-nine percent of executives cite bank position and transparency on risk, liquidity and capital as important indicators of overall performance, but just 27 percent feel their banks share this information freely with them. A mere 43 percent of executives are confident that banks are operating within the corporation's strict risk parameters, indicating a significant disparity between client expectations and perceived or actual bank performance. In the past, banks have been charged with evaluating corporate behaviors and risk profiles before creating partnerships. The financial crisis, however, has turned the tables on the financial sector.

Improving Relationships With Banks 
The first step to making corporations more satisfied with their arrangements with banking partners is for financial groups to improve their relationship management efforts and demonstrate attentiveness to clients' needs and wants. About 89 percent of executives cited service quality as the most influential factor considered when selecting a financial partner.

Furthermore, 56 percent of executives believe a lack of consistency and quality of services across locations is the greatest challenge of partnerships with banks, while the enterprises continue to rely on financial groups as sources of new ideas and fiduciary guidance. Other prominent obstacles to well-managed partnerships are outdated processes and systems, and too much bureaucracy or inflexibility.

Domestic Banks Flounder 
In the United States, many large banks are demonstrating poor performance on corporate governance tests, indicating a decline in oversight and management. The Office of the Comptroller of the Currency found 19 of the largest banks in the country failed the corporate governance test, as they were unable to meet internal, auditing, risk management or succession planning expectations. Of the 19 banks evaluated, just two met requirements to define a risk profile and share the information with others in the company, further underscoring a lack of transparency and communication between corporate and financial partners, Money News reported.

According to Mike Brosnan, OCC official overseeing bank supervision, banks are underperforming now, when evaluated against increased expectations, but will likely meet more of the regulator's minimum requirements by the second half of 2013. Despite the poor performance, the banking sector has already improved significantly since 2008, and is expected to keep rebuilding in the near future. U.S. regulators have strengthened requirements for big banks after missing major malpractices that allowed the financial crisis to occur, including poor loan underwriting, overleveraging, rapid growth and asset concentrations. The federal government plans to not be caught off guard again, forcing banks to adjust operations significantly, the source reported.

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