Bank Director asked industry experts to answer the question: What will be the biggest change in banking in 2013? Here are their responses.

1. Banks will cut
branches, infrastructure
The industry is overcapitalized and
has excess capacity. In order to get
returns, you will see banks rationalize
their infrastructure, whether it is
consolidating or closing branches, or
exiting markets. The outlook is margin
pressure with low interest rates.
Banks can’t really control that but
they can control how many branches
they operate.
—Peyton Green, senior research
analyst, Sterne Agee & Leach

2. There will be more bank
open platforms
A few years ago payment companies (e.g.
PayPal, MasterCard) started opening up
their networks to independent [software]
developers. Now, banks are also
beginning to embrace the open platform
idea. Credit Agricole, a large bank in
France, opened an online app
store, where its customers can download
financial management apps developed by
the bank and third parties, and propose
new ideas. At Celent, we believe that
bank open platforms and co-creation with
customers will be important sources of
innovation going forward.
—Zilvinas Bareisis, senior analyst, Celent

3. M&A will surpass regulatory
concerns for directors and
officers insurance
Ever since the credit crisis, the single
largest directors and officers
insurance claims driver from both a
frequency and severity standpoint has
been suits and investigations from the
FDIC or other regulatory bodies.
From 2008 to 2010, mergers and
acquisitions was the third largest
measurable category. In 2013, we
anticipate M&A related claims will
surpass regulatory claims as the single
largest claims driver.
—Dennis Gustafson, senior vice
president, AH&T Insurance

4. Globalization will slow;
new business models will
emerge
2013 will bring an interruption of
secular trends likely to startle many—
particularly the extent consolidation
and globalization slow or even
unravel. Look for: Unfreezing of
securitization markets, with
significant off-balance-sheet funding
to optimize bank capital. Likely to
have high impact: Increased
differentiation, and emergence of
meaningful new business models—
perhaps even serving the unbanked (1
in 12) and underbanked (1 in 5) U.S.
households.
—Ranu Dayal, senior partner, The
Boston Consulting Group

5. M&A will pick up
The long-anticipated increase in M&A
activity will finally occur.
Unfortunately, the increase won’t
come from voluntary transactions.
Rather, it will come as indebted
holding companies are forced to sell
their bank subsidiaries as they reach
the end of a 20-quarter trust
preferred deferral period [many banks
deferred dividends on trust preferred
securities starting during the crisis in
2008], or [as banks] are unable to
repay debt secured by the stock of
their subsidiary banks.
—Joel Rappoport, partner, Kilpatrick
Townsend & Stockton LLP

6. Boards will pay higher
base salaries and less long-
term stock
Competing pressure from bank regulators
to eliminate risk and shareholder
demands for pay/performance alignment
will ultimately drive changes in executive
compensation programs and practices
over the next few years. For example, the
Federal Reserve is pressuring the largest
financial companies to significantly reduce
upside in long-term plans. Stock options
are out of favor with both regulators and
Institutional Shareholder Services. The
impact of these new perspectives and
rules will result in revisions to the pay mix
(e.g. increased salaries and/or incentive
targets, greater focus on restricted stock).
—Susan O’Donnell, managing
director, Pearl Meyer & Partners

7. There will be higher
standards in 2013
Heightened standards is the byword
for 2013—that’s the direction coming
from the global standard setters, and
banks of all sizes will do well to pay
attention. Visible independence of
thought is more critical than ever –
directors have to provide a credible
challenge to the bank executive
management team. It also means
being proactive in setting the board
agenda. Board reporting has to
evolve beyond data dumps to
clear, concise and timely information.
—Kathryn Dick, managing
director, Promontory Financial Group

8. Banks will close
branches, invest in
electronic banking and
consolidate
The significant deterioration in branch
economics will reshape the landscape
of banking in 2013. We estimate that
the current level of interest rates and
regulatory reductions in deposit fees
has made a significant number of
branches unprofitable. As a
result, bank managers will accelerate
the closing of branches, increase
investments in electronic banking
platforms and consolidate smaller
banks.
—Fred Cannon, director of
research, Keefe, Bruyette & Woods