This year has been extremely challenging for businesses around the globe, but banks have not been hit too hard, especially when compared with the financial crisis. That could change, says Likhit Wagle, general manager of global banking at IBM, and he’s not so sure that banks are as prepared as they need to be.

Wagle says interest rates are likely to remain “extremely low”, growth is going to be “very low”, and the banking industry is likely to see “a very large increase” in non-performing loans.

“Apart from the US banks, I don’t think banks around the world have provided enough necessarily to protect themselves against the level of corporate loans, for instance, that we see going bad,” he tells WatersTechnology. “Deal activities are also likely to fall as you get into that much more challenging economy. The problem with investment banks is they have very high fixed costs, so they have to look at some very significant structural changes to be able to deal with that.” 

IBM is betting that banks will need to speed up their shift to the cloud and embrace containerization to improve operational efficiency.

“If you look at banks today—and I’m being generous here—they probably [have] 15–20% of their workloads sitting on public cloud. And that’s the most advanced, right? 80% of their workloads are actually sitting within the bank, some of it on private cloud, but a lot of it on-premise,” Wagle says. “If a bank is really going to get to the level of cost reduction they’ve got to achieve—which is 25–40% of that cost, in order to be viable—they’ve got to get to a model that’s going to be 20% public cloud, 40% secure public cloud, and then 40% on-premise.” 

As banks shift to this 20/40/40 structure, Wagle says containerization technology can help. It’s no secret that banks still rely heavily on legacy platforms. Containerizing applications from these platforms can allow them to slowly shift toward modern architectures, whether that’s on a public cloud, a secure public cloud, or remain on-premise.

The ability to move workloads from one type of cloud to another, as well as to move applications and data to other cloud providers, is something that regulators, such as the European Securities and Markets Authority (Esma), are pushing for. Esma is preparing to enact a new batch of cloud outsourcing rules, particularly looking at testing exit strategies and managing concentration risk.

Switching cloud providers is not as easy as it seems, says one senior executive for regulatory policy at an investment bank. “It’s not simply a copy-and-paste exercise.” 

The problem with investment banks is they have very high fixed costs, so they have to look at some very significant structural changes to be able to deal with that

Likhit Wagle, IBM

The ability to move from one cloud to another, or on-premise, was a key component for IBM’s $34 billion acquisition of Red Hat—and it’s OpenShift technology—last July, says Wagle.

OpenShift is Red Hat’s enterprise-ready Kubernetes container platform with full-stack automated operations to manage hybrid cloud, multi-cloud, and edge deployments. Wagle says it allows clients to put their workloads wherever they want to put them. He adds that these workloads don’t need to be on IBM’s cloud infrastructure.

“For instance, an investment bank might want to move a particular application to the public cloud, as it’s not constrained by any regulatory restrictions,” he says. “They can use Red Hat OpenShift to put that particular workload on Amazon, Microsoft, or Google’s public cloud. Red Hat OpenShift has very strong relationships with all of those cloud providers, and they can put it onto any one of those three clouds that they would prefer to use.”

Further to that, if for some reason they want to move to a different cloud provider, because that application is sitting on an OpenShift container, they can easily move that workload from where it is to somewhere else.  

Cloud & Reg

As more financial services firms turn to the cloud, firms are finding that it comes with unique challenges. IBM is partnering with Bank of America (BofA), which itself has made a name for building cloud infrastructures, to address some of the challenges specific to financial institutions.

In November last year, the two announced their pairing to bring the first financial services-specific public cloud to market. IBM Cloud for Financial Services is built on IBM’s public cloud and will allow participating parties to deploy workloads on data science, deep learning, and so on. 

The work being done with BofA will also allow the tech giant to better position itself on the regtech front. Ingrained in this effort is Promontory, the IBM subsidiary, which was acquired in 2016 and is a provider of regulatory expertise and solutions. Promontory’s involvement will help the platform establish a set of cloud security and compliance control requirements as the basis of its policy framework, which will allow financial institutions to host key applications and workloads on the cloud. 

IBM Cloud for Financial Services has a securities control framework and a data privacy framework that enables banks to take mission-critical workloads and put it onto the cloud, says Wagle. 

“The reason why that’s a really major step forward is because the price in terms of both customer experience as well as cost, is orders of magnitude better if you’re sitting on a public cloud environment with the flexibility that public cloud gives you, as opposed to if you were sitting on a very traditional platform, even if that was private cloud,” he says.

IBM and BofA are now working with a few anchor clients, such as BNP Paribas in Europe. MUFG Bank also plans to deploy IBM Cloud for Financial Services in Japan. IBM will work with other clients to ensure the platform is capable of operating in different jurisdictions. 

“Based on the work we did with Bank of America, we pretty much covered 70–75% of the regulations in all the major jurisdictions. But we still need to do the work together with anchor clients to be able to make sure that it covers the regulations in the UK, Hong Kong, and so on,” says Wagle.