This past spring, I surveyed a variety of tier 1 and tier 2 senior risk officers on a number of enterprise risk topics.  Some of the most interesting discussions during that survey were around systemic and systematic risk and how senior risk officers are dealing with the impacts of both on their institutions and portfolios.  According to our survey, 58% of risk officers are concerned about heightened levels of systematic risk over the next 12 months.

There is a lot of buzz about all things mobile these days and we all have to thank Apple for igniting the mobile market and bringing a better device to market than what was previously available. The problem with all this media interest is several market nuances get lost in the rush to cover an emerging story. Many people believe mobile banking and mobile payments are the same thing. Fortunately they are not. One is relatively easy and the other more complex. My belief is that one will take the market by storm, the other will remain elusive for years to come.

Bank of America, Commonwealth Bank of Australia, and Deutsche Bank today announced formation of a technology buying alliance which they see as a way to reduce their infrastructure costs and forge ahead into cloud computing. What these banks are really fighting against are the hefty maintenance fees their technology suppliers are assessing.  They believe that by joining together,  they can force a change in procurement practices and move to more shared or even open source solutions when they make sense.

The first quarter of 2010 is behind us, and it was a busy month for the FDIC shutting down 41 institutions. This was down from 45 in the last quarter of 2009, and 49 in the third quarter of last year - but almost double the number of failed banks in the first quarter of 2009  The cost of these failures however does appear to be stabilizing as:

• This is the fourth quarter in a row the cost ratio has either decreased or stayed the same. The cost ratio is determined simply by taking the cost of the failure to the FDIC and dividing it by the amount of insured deposits. This provides a simple way of determining in the aggregate if the health of the failing institutions is getting better or worse.

• The FDIC fund was reported to have a balance of NEGATIVE $20.9 billion dollars as of December 31st, 2009.  Additionally, the estimated cost of failures in the first quarter will drain that amount by another $6.4 billion.  The FDIC, however, has three years worth of premiums that they received from banks which will be recognized each quarter.  This means that even though the FDIC is showing a negative balance, that it does in fact have the funds to handle failures.

• Finally, the largest failure in the first quarter was an institution with $3.6 billion in assets. This is a significant drop from the $12 billion - $25 billion failures seen in the previous three quarters.

The concern now is for the large pipeline of troubled institutions, which is over 10% of all remaining banks as of the last quarter of 2009. Will the economic recovery being experienced come soon enough or have they already taken a bite of the poisoned apple? Delinquencies on mortgages continue to rise, foreclosures may be back on the increase, first time home buyers credit is set to expire and more and more people are underwater even though home prices have stabilized or are beginning to appreciate in some metro markets. Will this be a dead cat bounce in home values, an expression used mostly to describe a short rally for a stock before another drop in value? Let's hope not.

What then does this ultimately mean for the financial services industry and those who sell into it? At IDC Financial Insights, we continue to believe that bank failures will slow later in 2010 as the economy continues to recover. In fact, we have heard of some financial institutions actually taking on significant new IT projects and ramping up the hiring of IT personnel that had been let go during the crisis.  It may be too early to feel anything more than slightly positive about these trends, but after the darkness of the last 18 months we will take what we can get. Login to the IDC Financial Insights community where you can get a graphic of these data points and also provide your feedback.

All aboard!  The global risk management train is now leaving the station.  Our arrival time at “The New Normal” will be in 3 years and it is very likely we will experience delays and holding patterns in route due to dysfunctional infrastructure, central control problems and lack of effective resources. What is "The New Normal"? It is a state of regulation and business realities that will take 2-3 years to settle in but will represent permanent change for the financial services system.  Participants in the new normal will be financial institutions, regulators, technology providers and customers (of financial institutions).

Two weeks ago I put out an informal LinkedIn poll asking "What areas of risk need the greatest investment over the next 12 months?"  I call it an informal poll because the sample was not controlled, but the poll was extended initially  to my network which includes a wide array of risk professionals (both parishioners and consultants) across enterprise risk.  I also extended the question to a couple of international LinkedIn risk groups.  I received  approximately 50 responses and, while at first the results were volatile, as additional responses came in the results settled down.  I created the poll with an analytical suspicion and the poll has verified my thinking.

In talking with both end users and vendors to financial services companies, a common truth on future regulation is beginning to take shape.  Heretofore, regulators and financial institutions have been focused on aggregating data and applying business analytics to arrive at regulatory capital or economic capital.   Capital in these cases is equity that an organization maintains as a percentage of assets.  Simply stated, this means the level of equity a company has to sustain devaluations in its assets (such as loan losses or market instruments including derivatives, etc…) that are marked down or devalued.  There is a shift in thinking taking place that will drive the financial services industry to evolve regulatory capital towards the concept of balance sheet risk management.