LONDON, UNITED KINGDOM--(Marketwired - Nov 19, 2013) - Whether a bank prevails in global competition will be determined, in large part, by its ability to adapt proactively to relentless waves of regulation, according to the latest annual risk report released today by The Boston Consulting Group (BCG).

The report, Global Risk 2013-2014: Breaching the Next Banking Barrier, concludes that the new global and local financial reforms "collectively represent the next level of regulatory tightening -- a barrier banks must breach to remain competitive."

The banks that prevail in this environment, the report says, will be "proactive -- not reactive -- players. They will need a strategic approach that allows them to categorize, prioritize, and execute" against current and evolving regulations.

The study also found that the banking industry has reached a new postcrisis inflection point: some banks returned to profitability, while others did not. Although bank performance, averaged globally, changed little in 2012 from the previous year, profits differed sharply by region and also between developed and developing economies.

"Banking has now diverged into a three-speed world," said Gerold Grasshoff, a BCG senior partner based in Frankfurt, the global leader of the risk segment of BCG's Financial Institutions practice, and a coauthor of the report. "While developing markets performed strongly and North American banks moved beyond the financial crisis, European banks registered their worst year since the start of the crisis -- and in fact stagnated," he said.

The report is BCG's fourth annual assessment of the health and performance of global banking. Its findings are based on economic profit data from 318 retail, commercial, and investment banks that represent 90 percent of global banking assets. Economic profit weighs risk costs, as well as refinancing and operating costs, against income, providing a comprehensive measure of financial conditions facing banks.

The report notes that North American banks have recovered faster than those in Europe. It says this suggests that the U.S. crisis-management approach of clearing books with enforced early write-downs has been more effective than the step-by-step approach followed in Europe. From 2008 through 2009, U.S. banks incurred more than three times as many loan loss provisions as European banks. This more radical bank recapitalization "was the main driver of U.S. bank recovery in 2012," the report says. "Its benefits are likely to endure."

A Framework for Navigating Global Reforms

BCG's study offers an in-depth look at the balkanized universe of financial rules and regulations and assesses the increased costs and operational complexity that they impose on banks. "The winners will be the institutions that take a long-term view of their circumstances and adopt a proactive, strategic approach," the report says.