What’s next for global banks?

Banking giants in emerging markets will probably do well in any likely economic scenario. Other banks face a more challenging future.

In 2008, as the credit crisis broke, banks underwent near-death experiences on a massive scale. Last year, many enjoyed a recovery that was nearly as abrupt. In the intense uncertainty that ensued, bankers around the world have rightly shifted their focus away from growth and toward survival as they confront ambiguity about markets, risk, regulation, and demand.

Amid such extreme mood swings, long-term structural changes now under way will fundamentally affect banking in the years to come. To understand these changes, McKinsey undertook research that combined a historical view of the industry with an analysis of 25 global banks to see how various portfolios of banking businesses and geographic distributions would fare under different macro and regulatory scenarios. Among the findings:

 Under a scenario of lower global economic growth and tough regulatory restrictions, all but emerging-market banking giants will probably destroy value over the next four years. Funding costs will remain high, further hurting profitability.

 Without any management moves, banks of every type will need more capital—as much as $600 billion over the next five years for the 25 banks we modeled. That suggests a real danger of a capital crunch, further forced asset sales, and the need for additional government help.

 The range of performance by banks using similar business models will widen. Big European banking groups, for example, will see returns on equity (ROE) ranging from 9 to 18 percent.

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