Outsourcing and internal control in Banking Part.I

The use of outsourcing is a growing phenomenon that is a strategic choice for enterprises, generally guided by the objective of streamlining production costs and improve profitability. Did not escape this trend, banks are also appeal to external structures in order to give them in exchange for remuneration of non-strategic or unprofitable. For example, check processing is an activity often outsourced by the banks because it creates a significant load input and low added value.

But beware; the outsourcing of an activity does not prevent its control.
Indeed, 2007 orders involve clarifying the controls to be installed on the outsourced activities "essential." These changes are intended to ensure the principle of "no transfer of responsibility" of the Bank's external service provider. In this context, banks should review their internal control systems with a view to measuring, monitoring and control of risks related to outsourced activities. The controls must include details of:

* A guarantee of quality for normal service.
* The establishment of a plan for continuity of service by the service (commitment of recovery time).
* The protection of confidential information.

De facto, the outsourcing should result in a written contract between the provider and establishing external client. The contract shall contain a clause giving the right to regular audits and a statement of the steps taken by the continuous monitoring and periodic monitoring of outsourced activities. In view of these regulations, what are the good practices observed in the square as part of outsourced providers to common? Given the fairly concentrated market providers, banks often resort to common providers. For example include BRINKS Evolution for transporting money or Experiance to check processing draining a very large market share on their respective activities.

Banks will have to regain trust

The current financial crisis through the financial markets due to subprime write-downs but also with the announcement of an unprecedented fraud at Society General structurally alter the banking landscape and challenges acquired banks to the market, investors as well as their clients: the confidence of financial institutions.

Through the efforts of transparency, better management of their operational costs and optimizing their capital, banks have to adapt to a financial cycle that will require them to demonstrate their ability to innovate both in terms of respect new regulatory ratios in terms of cost reduction and business development. The impact of this crisis of confidence and the levers available to financial institutions to restore calm and confidence in the system should be done at the earliest.

China investors shunning banks

You could fear that may happen in Europe, but in China it is happening. According to the official press, the four largest commercial banks are Chinese investors look to other alternatives - such as individuals and private companies - to deposit their money, it pushed by high inflation and low interest rates.

According to the Zhongguo Zhengjuan Bao (Journal of China securities), deposits of the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China and Agricultural Bank of China (ABC) fell by 420 billion Yuan (48.6 billion Euros) during the first 15 days of September.

The business daily also argues that much of the funds were placed on a parallel credit market. If individuals and companies are certainly not having status to bank, they nevertheless offer pay about ten times higher than bank deposits. Recall that the rise in consumer prices was 6.2% in August, while the deposit rates at one year is only 3.5%. In the end, so investors lose purchasing power by placing their money in the bank.

It should be noted also that in early September, the rating agency Fitch said it may lower the sovereign rating of China in the next two years. Reasons: the heavy debt the Chinese banking sector, the latter having provided massive loans in recent months.

Fitch confirms the highest score to Germany

The rating agency Fitch on Tuesday reaffirmed the "AAA" rating to Germany, and now it is the best position. The outlook remains stable on the other hand. A good report that offers the very interesting German debt investment safe haven status in these troubled times.

Speaking in a statement, Fitch highlights the following: a German economy "robust and diversified", "health" of the labor market, a macroeconomic management "prudent" investments and "vigorous". According to the agency, the prevailing market rate for the German debt if need be shown the safe haven status associated with it. However, that "the resolution of the crisis in the euro zone remains a determining factor for the stability of the German economy" notes Fitch.

"With a 40% share of German exports, 2% of GDP spent on existing support plans, and exposure of its banking sector to peripheral economies in the euro area, the risk of contagion from the crisis in Germany public debt remains high, "said Fitch, as well.

A position that echoes that of the IMF, the IMF saw as a likely scenario now possible spread of the debt crisis of the euro area financial system. "The banks' exposure to the fragile economies of the euro area is a fraction of the total, but is concentrated on a small number of institutions," said the agency also. The Landesbanken, regional public banks also remain a weak point of the German economy, Fitch believes that "an additional restructuring and consolidation is needed in this sector."

Recall that the Basel Committee refuses to recognize the present German peculiarity consists in that a large part of bank capital is composed of public hybrid capital which banks must pay interest to shareholders. Local authorities could be forced to run vast operations re-capitalization, the amount could be just "confessed" politically speaking.

For many years, observers indicate persistently that only two or three Landesbanken sufficient in Germany, instead of the seven schools being independent. But, of course, local politicians are hesitant to say the least to give up some of the prestige and economic power associated with these regional facilities.

New measures to support the American economy

The U.S. Federal Reserve, Central Bank of the United States (EDF) announced Wednesday that it would take further measures to support the U.S. economy, saying the resumption of the latter remained "slow". Among the measures: the sale by the end of June 2012 the equivalent of $ 400 billion in Treasury bills.


Subsequently, the Fed plans to buy an equivalent amount with a longer maturity in an attempt to lower interest rates and long-term power purchase real estate securities without increasing the size of its portfolio, the objective to support the mortgage market. The Fed also said it would keep its key interest rate near zero until mid-2013 if necessary.

On Tuesday, investors had taken for granted that the U.S. Federal Reserve (Fed) announced shortly measures to resume, background likely to increase demand for raw materials. While opening the meeting of the Monetary Policy Committee of the Fed, investors are already betting on a new "Operation Twist", which is to lower interest rates in the long term to boost the activity without act on interest rates in the short term.

In fact, such an operation is to extend the maturity of securities held in the balance sheet, ten years and over, to reduce rates, evidence to boost business investment and household on the housing market. Such a measure Devit also have an immediate impact on prices by devaluing the dollar and increasing demand in emerging markets.