Here’s our outline of how US banks can address the fundamental complexities in their business models to drive profitability in the current low-rate environment.

1. Driving profitability in a low-rate world
The state of the banking industry

2. © 2016 Grant Thornton LLP. All rights reserved. 2
Introduction
Banks have already gone through multiple rounds of cost cutting, but they must also address the
fundamental complexities in their business models to drive profitability in the current low-rate
environment. This is a tough challenge. Since opportunities for top-line growth are scarce, the
ability to invest in the required transformation is significantly reduced.
In the face of this challenge, bankers should ask themselves:
• Is simplification the way to go?
• How can I combat rising compliance costs?
• What do I need to do to command a market premium?
Within the following slides we answer these questions and provide insight into the state of the
banking industry.

3. © 2016 Grant Thornton LLP. All rights reserved. 3
The state of the banking industry
1 Drive simplification throughout the business model
2 Invest in compliance optimization
3 Identify value-added services
As our banking clients plan for and enter 2017, we urge them to take the following actions.

4. © 2016 Grant Thornton LLP. All rights reserved. 4
Drive simplification throughout the business model
• Many U.S. banks organize around products
such as credit cards or mortgages, which
creates duplication and lack of accountability
for total aggregate costs
• U.S. banks tend to operate in product and
channel silos, duplicating processes and
missing opportunities to integrate data
• The steady increase in the number of channels
has led to these channels being bolted on to
existing solutions
• New channels such as digital and social media
have been bolted on to existing solutions
• Legacy solutions need to be re-engineered or
upgraded to address the new omnichannel
reality
• New market entrants can design a simpler, more
intuitive customer experience from scratch
Integrate data across product and channel silos Eliminate unnecessary products and features

5. © 2016 Grant Thornton LLP. All rights reserved. 5
• Many regulatory and associated reporting
solutions were implemented in a hurry
• Benefit could come from end-to-end process
re-engineering, reducing duplication and
driving productivity
• Leverage machine learning and analytics to
automate repetitive tasks and leverage human
intervention where it will most reduce risk
Reduce costs for activities that don't add value Refocus compliance teams to provide a
competitive advantage
Others are pushing the envelope further, leveraging cross-bank "utilities" to drive economies of
scale.
Invest in compliance optimization

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Invest in compliance optimization
• Leading banks are reaching outside their institutions to address core functions that are a
source of competitive advantage
• Banks are looking at their nonstrategic processes as the industry aims to operate in a
fundamentally simpler way
• Initial utility forays include time-consuming administrative functions such as client screening
and third-party risk assessment and monitoring
Explore industry utilities

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• Will allow banks to identify and understand individual client segments, life stages, specific
life events and needs
• These drive opportunities to provide a richer array of value-added services
• These services should lend themselves to additional fees and opportunities for bundling
products and services
Take a customer segment approach
Growth in fee income and the overall contribution of fee income compared to net interest margin
will be an important determinant of future profitability.
Identify value-added services

8. © 2016 Grant Thornton LLP. All rights reserved. 8
2/3
Nearly 2/3 of banking
respondents are enhancing
GRC activities by focusing
more on risk management,
and rougly half mentioned
refining/improving existing
enterprise risk
management.
1/3
More than a third are
integrating GRC into their
operations and business
strategy.
2/3
More than 2/3 indicated
that without existing
constraints, their internal
audit functions could add
value to identifying
improvement opportunities
More than 40% are
implementing data analytics
and risk modeling.
40%
Survey
Grant Thornton recently conducted a survey of corporate governance, risk and compliance
(GRC) functions, including nearly 100 banks of all sizes

9. © 2016 Grant Thornton LLP. All rights reserved. 9
Moving forward
Simply waiting for interest rates to rise is not a strategy. Which banks will be brave enough to
come forward with plans for focused and decisive action, accepting that there is only so far that
traditional cost cutting can take them?
Nigel Smith
National Financial Services leader
T +1 212 542 9920
E Nigel.Smith@us.gt.com
Contact "In this environment, even the best-run banks are
challenged to deliver a satisfactory return on equity.
And a disturbing number of the largest banks are
worth more on paper than their share values reflect – a
situation that's clearly unsustainable." –Nigel Smith,
Grant Thornton LLP's national Financial Services
leader

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