Prior to the economic downturn, financial services companies primarily employed high financial leverage to increase profitability. However, these companies have now been pressured to deleverage and seek alternative sources of profit by the changed economic picture, a rise in regulatory mediation, and competitive issues. In this altered environment, a new operating model is needed, one rooted in attaining the primary relationship - or at least one of the main relationships - with the customer, recreating trust, and forging active customer relationships. However, the global financial institutions continue to face numerous tests to bring stability back in the financial system and win customer trust.
Basel III regulations aim to overcome the shortcomings of the Basel II regime, which failed to effectively address risk exposures in the banking industry. The new regime proposes stricter capital and liquidity requirements for banks to ensure they remain resilient to financial shocks. It has also upgraded internal risk assessment processes and disclosure requirements to bring more transparency in banks' functioning. However, given the weak condition of banks due to rising regulatory pressures, operating costs and falling profit margins in several key economies such as the US and members of the European Union (EU), the timing of implementation remains uncertain, with migration to minimum capital requirements already delayed until the end of 2018.