This year, the annual meeting of industry representatives at the Handelsblatt Banking Summit was held under the motto “Zeitenwende” (turning point). The topics were as diverse as the current challenges for markets and financial service providers in particular. The current uncertainty regarding economic, political and social developments was noticeable at the industry meeting, even among optimists. A review of the event by Isabel Jahn, hkp/// group Partner and Financial Services Expert, with a particular focus on the challenges specific to the HR function in banks.

Ms. Jahn, during the conference, the ECB had raised the key interest rate by 75 basis points, which fueled fears of a recession. What were the reactions at the conference?

Isabel Jahn: Of course, such a measure drives decision-makers and experts, and this was also noticeable at the conference. But the interest rate hike had already been largely expected in the industry, so the commotion was limited. What was discussed much more intensively at the podiums and among the participants was the overall impact of the crisis.  

What is causing the bank leaders' greatest concern in this regard?

Isabel Jahn: Well, they are worried about the German or European economy, about the fact that private and corporate customers could increasingly get into trouble, and they are concerned about the future of the banking sector. However, the latter is not seen as a problem child, but rather as stable and resilient: Capital and liquidity buffers have been built up, risk provisioning has already been adjusted, and institutions are already taking a more cautious approach to lending, although it has been formulated that they are prepared to support their customers quickly and more intensively. 

Will the noticeable crisis lead to a shift in priorities, for example in transformation projects, etc.?

Isabel Jahn: Yes, there is a shift towards risk provisioning. But the topics of ESG, taxonomy and green banking will not disappear from the agenda. And technical development also continues to advance rapidly. Fintechs are leading to disruptive changes in the industry, so banks need to become more open to innovation and working in networks and collaborations - ‘embedded finance’ is the keyword here, but also the transformation of traditional players into agile organizations with a solid technological core. This requires specialists on board, an appropriate mindset, i.e. culture, etc.

The Handelsblatt had already drawn a conclusion from the conference after the first day: The crisis is polarizing the banking landscape. 

Isabel Jahn: I found that remarkable. An unexpectedly clear statement in this direction came from the CEO of Deutsche Bank, who on the one hand assessed the German economy and the banks as being in a resilient position, but on the other warned of the global dependencies of the German economy, in particular on the Chinese market, and described a recession as no longer avoidable.

Were there any opposing opinions regarding the topic of recession?

Isabel Jahn: No, Mr. Sewing already had the approval of the heads of other major banks on the first day with regard to Germany and Europe, for example Unicredit, BNP, but also Manfred Knof, CEO of Commerzbank, who on the second day of the conference described the war in Ukraine only as the beginning of the turn of the times, and Cornelius Riese, Co-Chief of DZ-Bank, who specifically warned of increasing private insolvencies and insolvencies of small companies.

What role did the issue of inflation play?

Isabel Jahn: It was omnipresent. Permanently higher inflation and possible over-indebtedness of private households and smaller, energy-intensive companies were discussed with concern by representatives of all three pillars of the banking sector and, in particular, by representatives of the savings banks and cooperative banks. Savings Bank President Helmut Schleweis even fears that in the future, 60% of private households may no longer have enough monthly income to cover their expenses. But there were definitely different views on how far-reaching the effects of the crisis could be, also in view of the monetary policy signals from the European Central Bank.

What were the positions of the regulators at the conference?

Isabel Jahn: There were differentiated signals. BaFin President Mark Branson looked at the risk management of the banks with a rather positive tenor and predicted a medium-term positive effect of the rise in interest rates, but nevertheless forecast a difficult short-term year for smaller institutes and pointed to increasing real estate risks. He expressed openness to a constructive approach to the industry in the crisis, but clearly rejected the call for easing, for example reducing the countercyclical capital buffer in this situation. And in the direction of the fintech scene, Branson emphasized that there will be no regulatory free pass for new business models. 

Did he have specific institutes in mind? Were there tensions to be felt?

Isabel Jahn: Of course he couldn’t make any statements about individual institutes. However, N26 Co-CEO Valentin Stalf, for example, when asked by the moderator about the growth restrictions imposed by regulators, spoke of significant progress by his company in implementing regulatory requirements and stressed that profitability was now the priority.

... a topic that is affecting fintechs across the board and is currently leading to strategy changes and sales, also in the crypto sector... 

Isabel Jahn: Yes, there’s a lot going on in the scene. And in the crypto sector, the experts at the conference were relatively unanimous, despite the mood of crisis, that more regulation was justified. 

On the second day, Finance Minister Lindner represented the political view. What impulses did he set?

Isabel Jahn: He was open to the demands of the industry, although he also called on the industry to become more robust and, conversely, pointed out that political processes were characterized by struggle and productive tension, and that some relief could not be implemented quickly enough as a result. However, he strongly advocated proportionality in banking regulation and supported a capital markets union to lower hurdles and strengthen Europe in global competition - while at the same time giving states autonomy in fiscal policy. 

After all, aren’t these positive signals?

Isabel Jahn: This was also how the wide range of participants at the conference understood it. However, he rejected the central aspect of a banking union, namely cross-border deposit insurance. With regard to the crisis, he made it clear that a turning point had been reached in three different directions: security policy, energy policy and the economy, and that the state’s financial capacities to respond to this were limited. Banks in particular would therefore play a key role as shock absorbers and co-designers of the transformation. Ensuring liquidity in the economy and enabling investments is not the task of politics. Their task is to shape the framework conditions. Specifically, he mentioned an improvement in the release from liability, measures in insolvency law and ensuring the ability of the state-owned KfW Bank to act. In addition, policy would intervene in cushioning social hardships and preventing structural breaks.

To what extent has the crisis debate pushed the topic of sustainable finance or sustainability out of the discussions?

Isabel Jahn: In the panel discussion, the implementation of sustainability issues in banks was described as challenging, especially for smaller institutions and those that had not already considered their positioning in terms of their products and portfolio design prior to the taxonomy requirements. The large institutions, on the other hand, see themselves well positioned not only to develop the right ESG strategy for themselves, but also to accompany their customers in the field and navigate through the requirements. Transparency and the structured collection of important indicators were formulated here as the key to success, and the attempt to follow the right principles rather than produce a lot of paper for compliant implementation - a thoroughly ambitious undertaking in view of the reporting obligations arising from the Corporate Sustainability Reporting Directive (CSRD).

How much did technological change shape the conference debate? 

Isabel Jahn: They were bundled together in the program under the title “It's technology, stupid”, which says a lot about the organizers’ view of the subject. In general, the field was broadly defined. A strategy update seems particularly necessary in the fintech scene, which according to Jessica Holzbach, co-founder and CEO of fintech Pill, is going through a difficult phase and, according to Embedded Capital's Ramin Niroumand, has to adapt to a new, healthier reality. There was agreement, however, that fintechs are an important component for the innovative strength of the industry as a whole and will not disappear from the scene - especially since they are used to quick and frequent changes. 

... to which the established institutions must also adjust. What is their response to the corresponding challenges?

Isabel Jahn: The conference showed once again that in the traditional banking scene, a clear digital strategy is a must for all institutions. In addition to the discussion about digital transformation, cloud-based solutions and their implementation, the payment area was identified as a key topic, which JP Morgen CEO Stefan Behr even described as an explicit growth area. Regarding the future of digital payments, Visa CEO, Albrecht Kiel, spanned from digital tokens, to cyber security, to open banking and partnering with fintechs, to the discussion of fiat vs. cryptocurrencies, to conclude with the metaverse as a business area of the future.

Embedded finance is a buzzword that has come up more and more frequently in recent months. Was it also the subject of any presentations or debates at the conference?

Isabel Jahn: The topic was indeed taken up in various places - and the requirements for Customer Centricity derived from this. The main focus was on understanding that customers are not looking for a financial product but primarily want to buy or finance a real product and simply need a financing solution to do so. Ulrich Coenen, CEO of Atruvia, therefore drew attention, along with others, to the fact that banks should focus on their advantages in competition: the huge treasure trove of customer data combined with a bonus of customer trust. If used correctly, this can create a targeted customer experience - and not just in the traditional retail business. The ability to provide brilliant financial basics while collaborating with other players at the customer interface was also discussed as an option for efficiently designed customer relationships. 

What impulses did you take away from the conference for HR management and the HR function in banks?

Isabel Jahn: HR aspects were not an explicit focus of the program. However, relevant topics occasionally popped up during presentations and discussions, or could be deduced accordingly. In general, HR is about setting up the People Agenda in such a way that it actively supports the ongoing transformation processes in the industry in the best possible sense. But importantly: HR itself must also rethink, react more quickly and flexibly to changes, and reassess the content of its own service portfolio in order to develop the necessary creative power.

From your point of view, what would HR offer specifically with regard to the issues of war and inflation - can these general conditions be specifically served from within the HR service spectrum?

Isabel Jahn: The war in Ukraine is further proof that we live in a world determined by ever faster changes and unpredictable events. This was already evident at the beginning of the COVID pandemic. For the HR function, this means above all reacting quickly and agilely to new requirements. 

Do you have a more concrete picture or example of successful responses for this?

Isabel Jahn: At the beginning of the pandemic, this could mean pragmatically adjusting personnel planning and supporting the credit area, for example, because the workload there had skyrocketed, or quickly offering flexible home office or remote work options and designing working time models so that employees could deal with the situation flexibly. The war in Ukraine, in turn, made it necessary to respond to sanctions in a variety of ways: Business units had to be downsized, employees relocated from foreign sites or otherwise supported along with their families. According to our knowledge of the market, the HR divisions have acted very strongly here. The task now is to learn from the crisis solutions created in this way, to review them and then to shape them for the future. 

In terms of inflation, however, speed will not help. That’s where basic answers are needed!

Isabel Jahn: In this respect, the fine line between the industry’s inherent cost pressures and the necessary adjustments to compensation must be tread with moderation, courage and foresight: If too many adjustments are made, the pressure on cost-income ratios increases, which can be a boomerang, especially during restructuring. If action is taken too cautiously or not at all, employees will be left to deal with the inflationary effects on their own; the already strained employer attractiveness of the industry will be further burdened. 

Will we see extremely high rounds of salary increases?

Isabel Jahn: We are holding discussions with a wide range of institutes, for example, on the appropriateness and feasibility of one-off payments to cushion particularly critical effects and of structural adjustments where necessary. This balancing act is currently also occupying companies outside the financial sector - as our surveys and studies show. At present, there are signs of a moderate approach to salary increase budgets, while at the same time being open to one-off payments, partly because there may also be tax relief in this respect. 

And the topic of sustainability - where do you see HR’s tasks here?

Isabel Jahn: Sustainability was a central topic at the conference, and it is also one with a strong connection to HR issues. It became clear that not only regulators, but also capital market partners and customers are increasingly demanding that ESG criteria be taken into account. Specifically, banks, as well as their investment portfolios and products, must be environmentally and socially oriented and meet clear governance requirements. The overall social trend makes it clear: ESG is here to stay. 

This makes the topic of sustainability not only relevant for portfolio management, banking processes and products...

Isabel Jahn: This became abundantly clear at the conference - it can’t just be about the E or G of ESG - the S component needs to be designed as well. In the meantime, the world’s largest investors, above all BlackRock, are increasing the pressure in this area and are calling for functional human capital management as an important component of sustainable and value-creating corporate management. And sooner or later, non-listed companies in the financial sector will also feel this pressure. HR managers will therefore be much more involved in the capital market dialog in the future and must be able to deliver the required key figures quickly and reliably. Our studies and discussions with HR managers show that there is still a lot of room for improvement. 

So yet another difficult to-do on the HR agenda?

Isabel Jahn: That is too one-sidedly negative for me. Optimistically, I would say: Once the transparency of relevant KPIs and processes has been created, HR managers have a greater opportunity than ever before to shape the future and act as a strategic partner to the company’s management. HR has never received so much attention. In addition to greater involvement in the investor dialog alongside the Supervisory Board, it is an opportunity to make a much more effective and visible contribution to the implementation of the corporate strategy as well as the sustainability agenda with one’s own value contribution.

And with regard to technological transformation, what role does HR play in this?

Isabel Jahn: A large field opens up here. On the one hand, HR is called upon to help shape the expansion of the organization’s digital fitness in many ways as part of HR planning and development, as well as overall culturally. On the other hand, HR itself must implement the digital transformation in its own area and for HR products and processes - in other words, it must move forward with energy on two levels. Here we are seeing a stronger focus on the part of HR managers and more networked collaboration with the corporate functions responsible for the digital strategy.

Finally, let’s take a look at regulation as a topic that has taken a heavy toll on the industry in recent years... 

Isabel Jahn: In fact, the discussions about new requirements in terms of compensation have moved somewhat into the background. But for that, the implementation of ESG taxonomies at global, European and national levels is in store for financial services providers. And these requirements must also be reflected in compensation - a development that has played a role in almost every redesign of compensation systems for some time now. And the differentiation of sector-specific requirements, for example for securities institutions from the Investment Firms Regulation (IFR), is also an issue. This results in further requirements in the design of compensation. In Germany, we are also currently still waiting for the publication of the Remuneration Regulation for Securities Institutions. Another outstanding issue is the update of the interpretative guide on the Remuneration Regulation for Institutions, which had already been announced for spring 2022. 

For this purpose, new requirements have to be implemented with regard to fair pay, which require an audit and, in a broader sense, also reporting to the European Banking Authority (EBA). 

Isabel Jahn: We are in intensive exchange with many customers regarding reporting on the gender pay gap, for example, and many companies have already put their entire compensation systems to the test in terms of discrimination or put together initial packages of measures to address structural deficits. 

This does indeed sound like a great need for action in human resources management in banks. Specifically from this perspective, what is your conclusion of the conference?

Isabel Jahn: Helping to shape the strategic issues discussed and to be derived at the banking summit is a major task - and not just for HR. An essential prerequisite for this is that HR is appropriately positioned organizationally, knows the relevant strategic issues and can contribute to their implementation. But it also needs a new self-image of being able and willing to act as a decisive shaper of transformation. The guiding question of HR managers in banks should therefore be: How do we manage to deliver real added value for our organization and provide decisive impetus for the achievement of corporate goals within the framework of management dialog? This means that HR - to quote the motto of the banking summit - is facing nothing more and nothing less than a turning point!

Ms. Jahn, thank you very much for the interview!

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