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Scenarios for financial services in the European Union

Study on human resource strategies for the post-crisis decade

The European Commission assigned Economix Research & Consulting (Munich) to develop long-term scenarios for the skill needs of the European financial sector. Facing the current financial crisis, the study was designed to identify different development paths until 2020 and to draw conclusions for human resource policies in the Member States.

The study was undertaken in cooperation with Danielle Kaisergruber Research & Consulting (Paris) and a team of European experts. It is part of a comprehensive analysis of future skill needs in the European Union launched by the Directorate General for Employment, Social Affairs and Equal Opportunities.

The report is available in English on the Economix website (www.economix.org). Here is the résumé of the study:

Current state

The failure of capital market liberalisation is starting to become apparent in these days of great trouble. Markets were unable to correct themselves without a severe crisis – and this is the point we are at now. The financial sector was unable to establish a sustainable business model and assess the risks correctly. This is the responsibility of management and public regulation.

However, it also depends on the skills and competences of the workforce which needs a sound understanding the financial markets and its risks. This is the starting point of future training policies. Even if the financial services make up a high-skill sector well above the standards of other industries, this did not prevent the business from triggering the current world financial crisis – which seems to be heading towards the worst economic depression for decades.

Scenarios until 2020

The scenarios for the European financial services sector take the strategic responses to the challenges of the financial crisis as their starting point. Three alternatives have been developed:

·            - Scenario 1 – called “sustainable finance” – assumes that the sector will develop a completely new business model, based on long-term investment strategies, consumer trust and high-quality consulting services. This exerts a cultural shock to the business, as it means the reversal of profit targets, standardisation, and controlling instruments in favour of sustainability.

·            - Scenario 2 – called “laissez-faire” – draws less radical conclusions from the crisis, assuming the continuation of short-term profit orientation from the past. Public control will remain weak, also due to impediments at the international level. Standardisation of financial products will be fostered. Mergers & acquisitions will revive. The instability of financial markets will not be removed.

·            - Scenario 3 – called “state ownership” – assumes that neither government nor the big players in the financial business will be able to keep control of the current crisis. Financial and economic turmoil will accumulate into a wave of destructive power. This will result in a significant reduction of economic activities for a long period, and force the financial services into an administrative role.

Conclusions for human resource development

All scenarios are expected to cause strong employment losses in the financial sector of the European Union – at least in the near future. Later recovery depends on the strategic choices made. In the “sustainable finance” scenario the number of jobs will increase due to the extension of consulting and business services. In the “laissez-faire” scenario the investment branch in particular will cause ups and downs of employment. In a publicly regulated financial sector finally employment will remain at a low level for a long time.

In common, the scenarios expect the continuous upgrading of skills – however with different types of specialisation:

·            - Scenario 1 assumes a new type of banker who acts with a long-term rather than short-term perspective, regards consumer trust as the basis and thus aims at sustainable business relations. This requires a new orientation of human resource development in principle.

·            - In scenario 2, the trends of the past will be continued using short-term profit targets, flexibility and market orientation as guidelines of human resource policies. Back-office functions will largely be transferred to highly standardised service providers.

·            - In scenario 3, human resource policies will be security and cost oriented. They will demand for sound administrative practices rather than market orientation.

Recommendations

As the emergence of the financial crisis is strongly routed in competence profiles, the study recommends employment-related policies to address the need for adequate training and increased R&D investments in the financial sector. Among the comprehensive list of suggestions, two priorities emerge in this context:

·         - Training policies should be reoriented towards the principles of capital markets, decent client consultation, controlling and risk assessment. Governments should take initiatives to implement such new types of training in the financial sector.

·         - As the tools of risk assessment failed to indicate long-term risks, R&D programmes should be launched to improve these instruments. Controlling principles should be reappraised in order to develop strategic controlling.

Human capital appears to be the key to restructuring, and public institutions can raise the pressure on the financial sector to develop a sustainable business model. Education and training is one approach to proceed along this route.

Economix Research & Consulting

Is a private research institute based in Munich (Germany). It is specialised on labour market and training issues. Analytical reports and policy recommendations are developed on behalf of the European Commission, Federal and Länder ministries and other public institutions. The institute is part of a European research network. Kurt Vogler-Ludwig – the director of Economix – is consultant for the European Commission.

Additional information can be found at www.economix.org

Contact

Kurt Vogler-Ludwig, Economix Research & Consulting, Lindwurmstraße 9, 80337 München, Germany

Tel: ++49-89-8757-9022

E-Mail:  vogler-ludwig@economix.org