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data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-5"><div class="mck-u-links-inline">In coming years, the “management quotient” will spell the difference between industry leaders and laggards.</div></div></div></section><main data-layer-region="article-body" class="mdc-u-grid mdc-u-grid-gutter-xxl"><div class="mdc-u-grid mdc-u-grid-col-1 mdc-u-grid-col-md-12"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div class="mdc-o-content-body mck-u-dropcap"> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="DownloadsSidebar_mck-c-downloads-sidebar__iFmyt mck-o-xs-right-span"><div data-layer-region="downloads-right-rail"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f"></h3><div><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f"><div class="mdc-u-align-center DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3"><img class="DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3 DownloadsSidebar_mck-c-downloads-sidebar__fullreport--image__RcOxJ" alt="" src="/~/media/mckinsey/industries/financial services/our insights/global banking annual review 2024 attaining escape velocity/gbar-2024-attaining-escape-velocity-f_thumbnail.jpeg"/></div><div><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-6 DownloadsSidebar_mck-c-downloads-sidebar__fullreport__pTrE3 DownloadsSidebar_mck-c-downloads-sidebar__fullreport--title__dsfYc">Global Banking Annual Review 2024: Attaining escape velocity</h5></div><a data-component="mdc-c-link" href="#/download/%2F~%2Fmedia%2Fmckinsey%2Findustries%2Ffinancial%20services%2Four%20insights%2Fglobal%20banking%20annual%20review%202024%20attaining%20escape%20velocity%2Fgbar-2024-attaining-escape-velocity-f.pdf%3FshouldIndex%3Dfalse" class="DownloadsSidebar_mck-c-downloads-sidebar__download-link__fPqFQ mdc-c-link___lBbY1_2734c4f" target="_self" data-layer-event-prefix="Download Link" data-layer-action="click" data-layer-report-type="" data-layer-file-name="gbar-2024-attaining-escape-velocity-f" data-layer-report-name="gbar-2024-attaining-escape-velocity-f>"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-download-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f"> (27 pages)</span></a></div></div></div></div> <p><strong>The past two years</strong> have been the best for banking since before the global financial crisis (GFC) of 2007–09, with healthy profitability, capital, and liquidity. But even though banking is the single largest profit-generating sector in the world, the market is skeptical of long-term value creation and ranks banking dead last among sectors on price-to-book multiples.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>About the authors</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>This report is a collaborative effort by <a href="/our-people/asheet-mehta">Asheet Mehta</a>, <a href="/our-people/karim-thomas">Karim Thomas</a>, <a href="/our-people/klaus-dallerup">Klaus Dallerup</a>, <a href="/our-people/luca-pancaldi">Luca Pancaldi</a>, <a href="/our-people/miklos-dietz">Miklós Dietz</a>, <a href="/our-people/pradip-patiath">Pradip Patiath</a>, Valeria Laszlo, and <a href="/our-people/vik-sohoni">Vik Sohoni</a>, representing views from McKinsey’s Financial Services Practice.</p></div></div></div></div></div></div> <p>In addition to a mix of macroeconomic factors, there are also some industry-specific ones:</p> <ul> <li>Labor productivity growth in banking has been mixed, even though banks spend the highest proportion of revenues across sectors on tech.</li> <li>Regulatory changes around the world continue to require investment.</li> <li>The more profitable pools in banking are witnessing competition from focused attackers (including private credit, payments, and wealth management).</li> <li>The recent lift in performance has largely been buoyed by rising interest rates.</li> <li>Despite the recent value creation, over the past decade, the sector has eroded economic value when measured against cost of capital.</li> </ul> <p>So will the liftoff in overall industry results achieved in 2023 give way to the gravitational pull of the industry’s recent history, as questions about banking fundamentals persist?</p>  <p>Looking at banks that outperformed over the past five to ten years could hold the answer to how banks might achieve escape velocity. Banks that win use a combination of smart moves on three structural dimensions (selecting segments carefully, finding scale where it can matter, and strategically locating themselves, whether geographically or in the value chain) and rigorous operational execution across a range of capabilities (for example, analytics, marketing effectiveness, operating model, and tech).</p> <p>The good news for the rest of the industry is that things can be improved. Indeed, about 10 percent of the industry improved as much as five deciles of return on tangible equity over the past five years (though conversely, roughly two-thirds of the industry stayed within two deciles of their prior performance). For banking to recover its multiple, management teams will need to conjure the dynamism of these winners. We believe this “management quotient” will be what makes the real difference in the remaining years of the 2020s.</p> <h2>The industry</h2> <div data-module-category="" class="PullQuote_mck-c-pullquote__DbaQ5 mck-o-lg-center"><blockquote data-component="mdc-c-blockquote" class="PullQuote_mck-c-blockquote__6n21p PullQuote_mck-c-blockquote--hide-quotes__CpGpg mdc-c-blockquote mdc-c-blockquote--is-quotes___TozKo_2734c4f"><p>Everything is going to be fine in the end. If it’s not fine, it’s not the end. </p><cite class="mdc-c-blockquote__cite-container"><div class="mdc-c-blockquote__author-name___u4L7-_2734c4f">Unknown (often attributed to Oscar Wilde)</div></cite></blockquote></div> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-disruptor1up mck-o-md-center mck-u-inline-module-border-top mck-u-inline-module-border-bottom mck-u-screen-only" data-layer-region="disruptor-1up"><div class="mdc-u-grid mdc-u-grid-gutter-md mdc-u-grid-col-lg-12 mdc-u-grid-col-md-12 "><div class="mdc-u-grid-col-md-span-12"><header data-component="mdc-c-header" class="mdc-c-header"><div class="mdc-c-header__block___i1Lg-_2734c4f"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div>Join us for a live webcast with the authors</div></h3><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-7"><p><div>January 15th – 10 a.m. EST / 3 p.m. CET</div></p></div></div></header><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f mck-c-disruptor1up__content Disruptor1Up_mck-c-disruptor1up__content--links__VV4lE mdc-u-grid-gutter-md"><a data-component="mdc-c-link" href="https://pages.mckinsey.com/Webcast_Creating-long-term-value-in-banking.html?gp=Strategy%20Corporate%20Finance&other-pso-mck-out-tsp-2552" class="-external mdc-c-link-cta___NBQVi_2734c4f" target="_blank"><span class="mdc-c-link__label___Pfqtd_2734c4f">Request invite</span><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mck-external-icon"></span></a></div></div></div></div> <p>There’s some solace in the witticism about it not being the end if it’s not fine. But recently, things have been fine indeed for banking, so what does that say about the endgame? In fact, the past two years have been the best for banking since before the Great Recession. Globally, banks generated $7 trillion in revenue (Exhibit 1) and $1.1 trillion in net income, with return on tangible equity (ROTE) reaching 11.7 percent. Banks have returned to healthy levels of capital (12.8 percent common equity tier one capital divided by risk-weighted assets) and liquidity (77.2 percent), which both improved over 2022. In fact, banking generated more total profit than any other sector around the world.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 1</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex1.svgz?cq=50&cpy=Center"/><img alt="In 2023, the global financial system intermediated $410 trillion in assets, generating about $7 trillion in revenue." src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex1.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>A graph, split into two sections, shows the breakdown of global financial intermediation in 2023, totaling $410 trillion in assets. A pair of horizontal segmented bars compares sources and uses of funds, and underneath a tree map measures share of total annual revenue from global financial intermediation, by type.</p> <p>The bar graph is categorized into on-balance sheet and off-balance sheet items. On-balance sheet items for source of funds include banks’ bonds, other liabilities, and equity ($59 trillion); corporate and public deposits ($52 trillion); and personal deposits ($65 trillion). Off-balance sheet items include sovereign wealth funds and pension funds ($32 trillion), retail assets under management (AUM) ($78 trillion), private capital ($10 trillion), insurance and pension AUM ($66 trillion), other alternatives ($9 trillion), other institutional AUM ($39 trillion), and digital assets ($1 trillion).</p> <p>On-balance sheet items for uses of funds include retail loans ($49 trillion), securities held on balance sheet ($60 trillion), corporate and public loans ($60 trillion), and other assets ($10 trillion). Off-balance sheet items include government bonds ($62 trillion), corporate bonds ($17 trillion), equity securities ($61 trillion), securitized loans ($12 trillion), and other investments ($79 trillion).</p> <p>The tree map shows the 2023 share of total annual revenue from global financial intermediation, by type. Retail banking leads with 33%, followed by corporate and commercial banking at 28%, payments at 16%, wealth and asset management at 14%, investment banking at 5%, other sources at 3%, and market infrastructure at 2%. The 2023 total revenue from global financial intermediation is $6.8 trillion.</p> <p>Footnote 1: Assets under management.</p> <p>Footnote 2: Including endowments and foundations, corporate investments.</p> <p>Footnote 3: Including real estate, commodities, cross-border deployments, derivatives.</p> <p>Footnote 4: Figures do not sum to 100%, because of rounding.</p> <p>Footnote 5: Net interest income from deposits considered in retail and corporate banking.</p> <p>Footnote 6: Includes revenues from real estate funds, infrastructure funds, hedge funds, commodities funds, absolute return, liquid alternatives, as well as from mining, buying and selling of digital assets via exchanges, custody, payments, and liquidity providers.</p> <p>Source: McKinsey Panorama</p> <p>End of image description.</p></div></div> <p>So why the foreboding? Simply, global banking is valued at a price-to-book ratio of 0.9—the lowest of all industries—which suggests the market is expecting the industry will erode economic value as a whole (Exhibit 2). And this challenge exists across most markets. There are many potential reasons for it:</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 2</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex2.svgz?cq=50&cpy=Center"/><img alt="Capital markets place a large and growing valuation discount on banking relative to other industries. " src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex2.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>An exhibit shows 2 stacked graphs: a line chart comparing the price-to-book ratio of the global banking industry to all other industries from 2003 to 2023, and a vertical bar chart showing the 2023 price-to-book ratio by industry.</p> <p>In 2003, the line chart shows the global banking industry’s price-to-book ratio was ~2.0x, while all other industries averaged ~2.7x. By 2023, the banking industry’s price-to-book ratio was ~1.0x, while all other industries averaged ~2.8x, marking a 68% difference.</p> <p>In 2023, the vertical bar chart shows the technology, media, and telecom industry leading with a price-to book ratio of 4.7x, followed by business services at 4.5x and pharmaceutical and medical products at 4.1x. The global banking industry has a lower ratio of 0.9x, highlighting a valuation discount compared with other industries. Nondepository financial institutions are positioned midrange, with a ratio of 2.7x.</p> <p>Footnote 1: Average excluding outliers and firms with a negative price-to-book ratio. Based on ~15,000 publicly traded companies.</p> <p>Source: S&P Capital IQ; McKinsey Panorama; McKinsey Value Intelligence</p> <p>End of image description.</p></div></div> <ul> <li><em>The improvement in returns could be fleeting</em>. Looking back, while the industry has reduced costs and kept credit quality high, the improvement in returns since 2021 appears to be largely owed to rising interest rates (Exhibit 3). Modeling, while imperfect, suggests that without rate support, industry ROTE in many geographies would have been around 8 percent, or below cost of capital. If one believes that rates will be lower than they are today, some of our scenarios suggest the industry’s ROTE could revert to near its cost of equity over the next two years.</li> </ul> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 3</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex3-vf.svgz?cq=50&cpy=Center"/><img alt="Net interest margin improvement has been the key driver of improved returns on tangible equity in recent years." src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex3-vf.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>Two waterfall charts show the contributing factors to the global banking industry’s return on tangible equity (ROTE) under actual conditions with interest rate increases and a theoretical scenario without interest rate increases, from 2021 to 2023. Under actual conditions, ROTE rose by 7.3 basis points is 2023, due to a 10.5-point increase in net interest income and a 3.6-point increase in risk costs. This was offset by declines in non-interest income (–0.3 points), operating expenses (–4.6 points), and taxes (–1.9 points). In the theoretical scenario, ROTE fell to 91.7 in 2021 from a baseline of 100, due to a drop in net interest income (–12.6 points) and non-interest income (–0.9), partially offset by gains from risk costs (+4.2 points) and operating expenses (+1.0 point). Taxes had no impact.</p> <p>Footnote 1: Greater China is excluded given different interest rate environment.</p> <p>Footnote 2: Includes loan loss provisions, other financial impairments, and write-downs.</p> <p>Source: McKinsey Global Banking Pools; McKinsey Panorama; McKinsey Value Intelligence</p> <p>End of image description.</p></div></div> <ul> <li><em>The wide variations in the industry across subsectors and geographies may skew how certain institutions are viewed relative to others.</em> Structure and mix could significantly influence how individual banks fare as conditions change. In some countries, including the United States, the United Kingdom, India, Germany, and Nigeria, performance improved in 2023 versus the 2010–22 period, while other countries, like Brazil, Canada, China, Japan, and Australia, saw lower ROTEs.</li> <li><em>Banks may not be able to count on raising productivity or harnessing scale</em>. These continue to be conundrums for banks in many regions of the world. AI hasn’t yet proved a panacea (though quite recently, some leading banks that have been first movers have publicly announced efficiencies from AI—for some of them in the billions of dollars, already worth as much as a point of efficiency ratio). Despite a global total of approximately <a href="/industries/financial-services/our-insights/unlocking-value-from-technology-in-banking-an-investor-lens">$600 billion being spent by banks on tech</a> that should be boosting productivity, labor productivity in some major markets (for example, the United States) is declining.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="ad508ddb-fb3d-4abc-928e-e3c1f2b07008"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="ad508ddb-fb3d-4abc-928e-e3c1f2b07008" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Gregor Petri, Jeff Casey, and Debbie Buckland, “2024 outlook: Enterprise IT spending forecast for banking and investment services,” Gartner, December 4, 2023.</span></span></span></a></span> AI could change that, but at most banks, generative AI is currently in pilot mode. And with it comes more spending and more regulatory requirements, so many banks have adopted a cautious posture.</li> <li><em>Improvement in margins may not be able to come from more cost cutting</em>. To maintain current ROTE in the face of some macro-driven scenarios, the industry would need to reduce its cost per asset by 5 percent per annum, or five times the industry’s historic performance of 1 percent reduction per annum (Exhibit 4).</li> </ul> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 4</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex4-vf.svgz?cq=50&cpy=Center"/><img alt="Banking has a leveraged business model and cannot simply cut costs to ‘escape gravity.’" src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex4-vf.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>An exhibit shows 2 side-by-side graphs representing cost reduction in the banking industry.</p> <p>First, a bar chart compares cost-to-asset reductions needed to maintain current return on tangible equity (ROTE) given anticipated revenue margin compression. Revenue margins are projected to decrease from 3.1% in 2023 to 2.7% in 2030 (a CAGR of –2%), while cost to assets are expected to drop from 1.3% in 2023 to 0.9% in 2030 (a CAGR of –5%). This suggests that banks will need to reduce costs ~2.5x faster than the decline in revenues to sustain current ROTE margins.</p> <p>Second, a line chart shows historical and projected cost-to-asset ratios from 2010 to 2030. While historical ratios remained stable, fluctuating between 1.2 and 1.6% (with a CAGR of –1%), the projected ratios indicate a sharper decline, dropping from 2023 onwards to ~0.9% by 2030, suggesting that an annual reduction of 5% is necessary to maintain 2023 value creation levels.</p> <p>Footnote 1: Revenue margin is defined as net interest revenue + fee and commission revenue divided by outstanding balances.</p> <p>Footnote 2: For an average global bank.</p> <p>Source: Economist Intelligence Unit, Oxford University; McKinsey Panorama; McKinsey Value Intelligence</p> <p>End of image description.</p></div></div> <ul> <li><em>Attackers continue to pressure incumbents</em>. As we described in last year’s Global Banking Annual Review, about two-thirds of financial asset value growth was in off-balance-sheet assets (for example, mutual funds and alternatives).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="082ca3fa-22fe-48cf-aed2-8a44da633667"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="082ca3fa-22fe-48cf-aed2-8a44da633667" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“<a href="/industries/financial-services/our-insights/global-banking-annual-review-2023">Global Banking Annual Review 2023: The great banking transition</a>,” McKinsey, October 10, 2023.</span></span></span></a></span> Nontraditional competitors (for example, nondepository companies and private capital) and well-funded neobanks peck at the largest profit pools.</li> </ul> <p>Macro uncertainties and industry-level issues also pose challenges:</p> <ul> <li>The cost of funds for banks could increase, driven by continued quantitative tightening that reduces total deposit volumes (–6 percent CAGR since 2021 in the United States and –10 percent at European Central Bank) and increased competition with money market flows in some markets.</li> <li>Loan originations face the dual challenge of declining consumer and corporate demand. For example, US commercial real estate (CRE) originations are down 55 percent from their pandemic peak and 25 percent below their ten-year average. At the same time, existing assets face potential devaluations—some of which are yet to be fully realized. For example, CRE price index was down 9 percent in the fourth quarter of 2023 in the United States and the euro area. A reduction in interest rates may help to smooth some of these effects.</li> <li>Unrealized losses for held-to-maturity securities are predictably burning off and will shrink, with revaluations at lower rates, potentially opening the aperture for M&A. But large-scale M&A hasn’t been a certain path to success.</li> <li>Our projections for the original Basel III endgame impact on ROE were material. It remains to be seen what the recently released revised proposal will result in, but that could have a further moderating effect on ROTEs.</li> </ul> <p>Add these challenges to the geopolitical uncertainties of the world today, and one can contextualize the impact on ROTE that the markets are foreseeing.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-md-center Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-section1-1214717385-1536x600.jpg?cq=50&mw=1180&cpy=Center"/><img alt="""" src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-section1-1214717385-1536x600.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div class="mck-u-sr-only">""</div></div> <h2>Attaining escape velocity</h2> <div data-module-category="" class="PullQuote_mck-c-pullquote__DbaQ5 mck-o-lg-center"><blockquote data-component="mdc-c-blockquote" class="PullQuote_mck-c-blockquote__6n21p PullQuote_mck-c-blockquote--hide-quotes__CpGpg mdc-c-blockquote mdc-c-blockquote--is-quotes___TozKo_2734c4f"><p>For things to stay the same, things will have to change. </p><cite class="mdc-c-blockquote__cite-container"><div class="mdc-c-blockquote__author-name___u4L7-_2734c4f">Giuseppe Tomasi di Lampedusa (<em>The Leopard</em>, 1958) </div></cite></blockquote></div> <p>We believe that banks wanting to attain escape velocity will need to operate very differently from today to “avoid gravity.” To understand how they could do this, we looked at the track record of performance by some leaders, hoping to find clues to their longer-term health.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><div data-component="mdc-c-dropdown-menu" class="mdc-c-drop-down"><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-drop-down__rootmenu___yJzvz_2734c4f" aria-expanded="false" aria-haspopup="menu"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-share2-icon"></span></button><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class=""></div></div><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>About our analysis</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><ol> <li>First, we looked at banks that have separated from the pack in both return on tangible equity (ROTE) and price-to-book multiples. This identified institutions that have outperformed their peers.</li> <li>Second, we looked at banks that have changed their position by more than five deciles of performance vis-à-vis their starting point five years ago. This identified institutions that have been successful at changing their performance positively.</li> <li>Third, we looked at banks that have consistently delivered above their cost of capital (a relative rarity in an industry where, between 2013 and 2023, the average bank globally generated a $1 million economic loss, a figure which would have been substantially higher without the recent interest rate increases). This identified consistent performers.</li> <li>Finally, we looked at banks in the United States in the top decile of TSR, compared them with the bottom-decile banks, and then ran dozens of metrics through our models to unpack, statistically, the economic drivers of the top institutions’ TSR. This defined economic drivers that have propelled differentiated returns to shareholders in at least one major region.</li> </ol></div></div></div></div></div></div> <p>As we say this, it’s also important to note that banks are by nature fragile entities that first and foremost need to prioritize safety and soundness. Poor structural bets, like a lack of diversification by concentrating on one segment or over-rotating on a portfolio, can destroy banks through liquidity or credit quality. Some of the leading banks in the United States by the measure of ROE (and often, growth) from a few years ago were consumed by the regional banking disruption of 2023. Further back, prior to the GFC, the leaders were subprime originators. So when we look at winners, we’re cautious, looking at what they do through the lens of whether they are achieving their leadership prudently and sustainably.</p> <p>With that in mind, we identified potential winners from around the world (see sidebar “About our analysis”).</p> <h2>The winners</h2> <div data-module-category="" class="PullQuote_mck-c-pullquote__DbaQ5 mck-o-lg-center"><blockquote data-component="mdc-c-blockquote" class="PullQuote_mck-c-blockquote__6n21p PullQuote_mck-c-blockquote--hide-quotes__CpGpg mdc-c-blockquote mdc-c-blockquote--is-quotes___TozKo_2734c4f"><p>When you come to a fork in the road, take it. </p><cite class="mdc-c-blockquote__cite-container"><div class="mdc-c-blockquote__author-name___u4L7-_2734c4f">Yogi Berra</div></cite></blockquote></div> <p>Perhaps heeding the baseball sage’s advice, banking winners have achieved their position through a combination of both structural and execution moves. Neither strategy confers enduring advantages, but the combined effect puts banks in a position that’s market leading. Here’s what we observed:</p> <h3>There’s a path to escape velocity</h3> <p>A total of 14 percent of banks are expected to create value and perform at a high level based on their current price-to-book multiple (more than one) and price-to-earnings multiple (more than 13), demonstrating that there’s a path to “escape gravity” in the industry. By comparison, about 62 percent of publicly traded companies outside of banking achieve this same threshold.</p> <h3>The path is more common now</h3> <p>In good news, higher performance is becoming more distributed across the industry (perhaps aided by the regulated nature of different markets). Today, 14 percent of banks account for 80 percent of the economic profit in the industry, up from 11 percent in 2013. The figure is almost five times the average of all other industries, where performance is far more concentrated in a few players.</p> <h3>The outperformance can be large</h3> <p>Our analysis of TSR outperformers (in the United States) shows that there’s a wide dispersion in performance: 14 points between the top and bottom deciles across 90 top US banks between 2013 and 2023. Four operational metrics, along with avoiding risk, largely explain most of the outperformance of TSR: <em>revenue growth</em> (34 percent); <em>better net interest margin management</em> (34 percent) from lower cost deposit-gathering strategies or better distribution and credit risk management;<em> growing fee income</em> (16 percent) from expansion in advisory services, wealth management, and other fee-heavy businesses; and <em>cost efficiency</em> (5 percent).</p> <h3>Where you operate matters</h3> <p>About one-third of these institutions are in attractive banking markets (for example, Australia, Canada, and India) that demonstrate high margins and strong fundamentals (for example, demand for credit, demographics, and economic growth) (Exhibit 5).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 5</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex5-vf.svgz?cq=50&cpy=Center"/><img alt="Value creation is uneven across the world." src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex5-vf.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>A bar graph compares the share of public banks with a price-to-book ratio of >1 and a price-to-earnings ratio of >13, by region, in 2023. Canada and US have the greatest share, with 21%, followed by emerging Asia (14%), Africa and the Middle East (11%), developed Asia (9%), Caribbean and Latin America (8%), Greater China (7%), and Europe (5%). The global average is 14%.</p> <p>Note: N = 786, of which 112 are outperforming.</p> <p>Source: McKinsey Value Intelligence; McKinsey analysis</p> <p>End of image description.</p></div></div> <h3>Performance also matters</h3> <p>Endowment or structure—or where you operate—isn’t the only thing that matters. Institutions have achieved and sustained high levels of performance through deliberate strategic choices around structure and bold moves around execution.</p> <p>What do these banks look like? Since comparing widely varying geographies is pointless, we normalized some features to common benchmarks. The outperformers’ revenue growth is 1.5 times their local GDP growth, their fee-to-revenue ratio is typically 40 percent or higher, their efficiency ratio is lower than 50 percent, and their risk costs are generally well-managed enough through the cycle to be significantly below their reference industry’s costs.</p> <h2>Where to compete (structure)</h2> <p>Winners have at least one of three structural markers that drive their performance:</p> <ul> <li><em>Picking and decisively committing to the right segments for growth while avoiding the trap of over-rotating into them</em>. Investing in growth by client segment or product type but not tipping to a point of concentrating exposure is crucial. Some winners have grown their commercial portfolios that inherently carry lower expense ratios, thereby lowering the institutions’ overall expenses. Others have leveraged their platforms in sectors like wealth and payments.</li> <li><em>Finding scale where it matters to drive productivity and acquisition</em>. While in some countries, finding economies of scale is elusive at the overall industry level, scale does exist in pockets, and finding out how to harness it can thus have a significant effect. Some winners have found those pockets and doubled down on their position to create more margin by moving up the scale curve.</li> <li><em>Optimizing location—either geographically or in the customer value chain</em>. Positioning is clearly important, and some banks have chosen to shape their footprint either transnationally in countries or domestically in states and provinces that show higher-than-average economic prospects. Other banks have occupied strategic positions along the value chain.</li> </ul> <h2>How to win (execution)</h2> <p>Execution excellence also provides an edge. For many institutions, there are limits to what can be done structurally (for example, shifting geographies and entering more attractive lines of business). More disciplined focus can be on targeting specific profit pools, more granular pricing capabilities, and better tailored customer segments for growth, among other approaches.</p> <p>The following are some execution-based approaches we observed among the winners across the globe:</p> <ul> <li><em>Deepening relationships (one customer-centric bank and ecosystems). </em>This is particularly a factor in the corporate space. Delivering the right mix of mutually reinforcing businesses across balance-sheet-intensive and fee-generating activities spreads the cost of acquisition of an expensive customer across more of the bank.</li> <li><em>Achieving retail or small and medium-size business (SMB) customer primacy through a personalized funnel. </em>A North American leader has retooled itself to create a more personalized experience for its customers, focusing on products like wealth and home equity to create rapid cycle propositions (as many as four marketing campaigns a month). It has attached that to a segmentation that drives who answers the phone, the script used, and ultimately what kinds of ongoing servicing support the customer experiences.</li> <li><em>Leveraging granular pricing and risk selection</em>. A leader that had long prided itself on both customer access and speed of decision making realized a few years ago that these two edges were being competed away by the ubiquity of digital offers and the inevitable compression of decision-making time. Indeed, in its market today, the vast majority of approvals are achieved in a matter of hours.</li> <li><em>Building world-class lead generation in wealth management</em>. A wealth manager with a large team of financial advisers decided to fundamentally shift its approach to lead generation and economics. The institution recognized that there were three outsize drivers of capturing “money in motion”: the right offer, the right time, and delivery through the right channel. Getting these three things right is delivering a propensity to convert that’s almost 20 times higher than peers.</li> <li><em>Achieving retail or SMB customer primacy through mobile-orchestrated distribution.</em> A winner that operates in a digitally forward nation has invested heavily in making the shift from thinking about an omnichannel distribution strategy to using one that’s truly mobile orchestrated. It has elevated mobile as the orchestrator of all customer journeys; standardized all other channel operations; moved many services that require specialized expertise into a remote advisory model; and invested in orchestration across the customer relationship management, funnel management, and customer value management systems.</li> <li><em>Using strategic talent management to win with clients and unlock productivity. </em>Some winners are focusing on their return from talent and using their people to differentiate their client value proposition. They have created a strategic HR capability to recruit candidates in days instead of months, compensate at the top quartile, maintain employee satisfaction scores, and inspire their workforces to go above and beyond to serve their customers.</li> <li><em>Picking the right spots in wholesale banking to win</em>. A regional wholesale bank recognized that it would never reach the scale to win. Instead, it built vertically integrated sector offerings to become the destination institution for companies in those sectors. It invested deliberately in talent, footprint, marketing, and thought leadership to build its brand in these areas.</li> <li><em>Building an AI-enabled bank.</em> While intelligence that’s truly artificial is still emerging, there are a few leading institutions that have leaned very heavily into using advanced analytics, which include machine learning, deep learning, and more recently, generative AI and other approaches. They have built this into their cultural fabric and operating models.</li> <li><em>Using proven operating models to unleash speed at scale, safely. </em>Several winners have built (and branded) their operating models. These are variations of “digital factories,” “product and platform,” or more aggressively, “independent mini-companies” that are able to operate under the same umbrella with more independence while automating a large portion of common services.</li> </ul> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-md-center Image_mck-c-image__fhx5v"><picture data-component="mdc-c-picture" class="Image_mck-c-image__img-container__JusDB"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-section2-1280618640-1536x600.jpg?cq=50&mw=1180&cpy=Center"/><img alt="""" src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-section2-1280618640-1536x600.jpg?cq=50&mw=767&cpy=Center" loading="lazy"/></picture><div class="mck-u-sr-only">""</div></div> <h2>‘Management quotient’ as a differentiator</h2> <p>About 10 percent of global banks have been successful at raising their performance by as much as five or more deciles of the industry’s ROTE distribution, showing that breakout performance is indeed possible in this sector (Exhibit 6). But overall, our analysis shows that there doesn’t seem to be a lot of relative positional movement in the industry. Only 5 percent of banks dropped their performance by five or more deciles, about half the industry remained within one decile of its starting position, and roughly two-thirds of the industry remained within two deciles of its starting position.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 6</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex6.svgz?cq=50&cpy=Center"/><img alt="About 10 percent of banks have moved up five or more deciles in return on tangible equity over the past ten years." src="/~/media/mckinsey/industries/financial%20services/our%20insights/global%20banking%20annual%20review%202024%20attaining%20escape%20velocity/gbar-2024-ex6.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>A segmented bar chart shows the share of banks that changed deciles in return on tangible equity from 2013 to 2023. At the center, the largest segment, at 18.5%, represents banks with no change in decile. To the right of center, the smaller segments show banks that increased deciles, with increasingly smaller segments representing larger jumps in profitability: 16.3% increasing by 1, 10% by 2, 7.2% by 3, 4.0% by 4, 3.2% by 5, 2.6% by 6, 1.3% by 7, and 1.7% by 8 or more deciles. To the left of center, the smaller segments indicate decreases: 12.9% decreasing by 1, 7.5% by 2, 6.1% by 3, 3.9% by 4, 2.2% by 5, 1.6% by 6, 0.7% by 7, and 0.2% by 8 or more deciles.</p> <p>Source: McKinsey Panorama; McKinsey Value Intelligence</p> <p>End of image description.</p></div></div> <p>These figures speak to how hard improving performance is. The industry is rife with examples of well-intentioned ideas and initiatives that didn’t anticipate second-order effects that weren’t sustained over time (for example, cost-cutting programs that lasted two years only to see costs “walk back in the door”) or that ran at cross purposes (for example, poorly designed mobile apps that led to increases in call center volumes instead of the reductions planned in the business case).</p> <p>Given the market’s current view of banking and the gravitational forces at work, management teams can seize the moment to separate from the pack and create real dynamism by answering five core questions:</p> <ul> <li><em>The hand you have been dealt</em>. Given market structure matters (fragmented versus concentrated, public versus private, and global versus national versus regional versus community focused), what’s your thesis about how the fundamental economics in your specific market will play out? What are the empirical drivers of your and your competitors’ market values that could realistically be influenced to drive relative competitive advantage?</li> <li><em>The hand you play</em>. Once you have isolated and accounted for market-structure-oriented drivers of enterprise value, how much of the residual value gap to your competitors can be closed by further harnessing endowments your bank enjoys (for example, brand and community loyalty)? How much would need to rely on execution factors (for example, moves you make and businesses you grow into)?</li> <li><em>Tilting the scales.</em> Where are the points of disproportionate structural leverage (for example, via scale, portfolio mix, and relationship depth)? Where are the points of disproportionate executional leverage (for example, from better risk selection, talent selection, pricing, and marketing)? How much of this leverage is organically capturable?</li> <li><em>Friction or frictionless</em>. Is your operating model set up to translate ideas to actions fluidly, or does it sometimes feel like you’re wading in mud when trying to get things done internally? What exactly is getting in your way? What can be learned and adapted from more nimble executors?</li> <li><em>Improvidus, apto, quod victum</em>.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="2144e9a8-c56b-40a5-a126-589be7b01f70"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="2144e9a8-c56b-40a5-a126-589be7b01f70" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Improvise, adapt, and overcome.</span></span></span></a></span> How fast do you tack to changing trends and competitors’ moves? Who are the “beacons” you have set yourself and your management team to emulate, so you can leap ahead?</li> </ul></div><div class="container-placeholder"></div></div></div><div class="mdc-u-grid mdc-u-grid-gutter-xl"><section role="contentinfo" data-layer-region="article-about-authors" class="mdc-u-grid mdc-u-grid-col-md-12 AboutAuthor_mck-c-about-author__nRJzu"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f mdc-u-align-center"></h5><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline mck-u-links-inline--secondary mdc-u-mt-5"><div><p><strong><a href="/our-people/asheet-mehta">Asheet Mehta</a></strong> is a senior partner in McKinsey’s New York office, <strong><a href="/our-people/karim-thomas">Karim Thomas</a> </strong>is a partner in the Bay Area office, <strong><a href="/our-people/klaus-dallerup">Klaus Dallerup</a></strong> is a senior partner in the Copenhagen office, <strong><a href="/our-people/luca-pancaldi">Luca Pancaldi</a></strong> is a senior partner in the Milan office, <strong><a href="/our-people/miklos-dietz">Miklós Dietz</a></strong> is a senior partner in the Vancouver office, <strong><a href="/our-people/pradip-patiath">Pradip Patiath</a></strong> is a senior partner in the Miami office, <strong>Valeria Laszlo</strong> is a senior asset leader in the Budapest office, and <strong><a href="/our-people/vik-sohoni">Vik Sohoni</a></strong> is a senior partner in the Chicago office.</p> <p>The authors wish to thank the following colleagues for their contributions to this report: Amit Garg, Andres Vasconez, Anubhav Das, Anuj Gupta, Cage Brewer, Candelaria Casado, Cristina Catania, Debopriyo Bhattacharyya, Dmitry Devyaterikov, Eckart Windhagen, Eszter Teszarik, Fuad Faridi, Jay 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Annual Review","displayName":"Global Banking Annual Review","fields":null,"databaseName":"web","deviceId":"fe5d7fdf-89c0-4d99-9aa3-b5fbd009c9f3","itemId":"3cb5d295-e758-49bb-ae99-5a6beeb48d78","itemLanguage":"en","itemVersion":1,"layoutId":"ae753eb4-a035-40b4-83bf-4b4438df6742","templateId":"683910db-02ba-40ba-92e7-726c880160a9","templateName":"ArticleJSS","placeholders":{"jss-main":[{"uid":"232bb7e9-289f-492d-a916-2b6185e44a84","componentName":"ArticleTemplate","dataSource":"","fields":{"data":{"articleTemplate":{"title":{"jsonValue":{"value":"Global Banking Annual Review 2024: Attaining escape velocity"}},"sEOTitle":{"value":"McKinsey\u0026rsquo;s Global Banking Annual Review 2024"},"description":{"jsonValue":{"value":"In coming years, the \u0026ldquo;management quotient\u0026rdquo; will spell the difference between industry leaders and laggards."}},"sEODescription":{"value":"McKinsey’s Global Banking Annual Review offers the best of our research into the global banking industry. Explore the findings from our latest 2024 report."},"displayDate":{"jsonValue":{"value":"2024-10-17T00:00:00Z"}},"body":{"value":"[[Audio 1]] [[DownloadsSidebar]]\n\u003cp\u003e\u003cstrong\u003eThe past two years\u003c/strong\u003e have been the best for banking since before the global financial crisis (GFC) of 2007\u0026ndash;09, with healthy profitability, capital, and liquidity. But even though banking is the single largest profit-generating sector in the world, the market is skeptical of long-term value creation and ranks banking dead last among sectors on price-to-book multiples.\u003c/p\u003e\n[[sidebar authors]]\n\u003cp\u003eIn addition to a mix of macroeconomic factors, there are also some industry-specific ones:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003eLabor productivity growth in banking has been mixed, even though banks spend the highest proportion of revenues across sectors on tech.\u003c/li\u003e\n \u003cli\u003eRegulatory changes around the world continue to require investment.\u003c/li\u003e\n \u003cli\u003eThe more profitable pools in banking are witnessing competition from focused attackers (including private credit, payments, and wealth management).\u003c/li\u003e\n \u003cli\u003eThe recent lift in performance has largely been buoyed by rising interest rates.\u003c/li\u003e\n \u003cli\u003eDespite the recent value creation, over the past decade, the sector has eroded economic value when measured against cost of capital.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eSo will the liftoff in overall industry results achieved in 2023 give way to the gravitational pull of the industry\u0026rsquo;s recent history, as questions about banking fundamentals persist?\u003c/p\u003e\n[[MostPopularArticles 5]]\n\u003cp\u003eLooking at banks that outperformed over the past five to ten years could hold the answer to how banks might achieve escape velocity. Banks that win use a combination of smart moves on three structural dimensions (selecting segments carefully, finding scale where it can matter, and strategically locating themselves, whether geographically or in the value chain) and rigorous operational execution across a range of capabilities (for example, analytics, marketing effectiveness, operating model, and tech).\u003c/p\u003e\n\u003cp\u003eThe good news for the rest of the industry is that things can be improved. Indeed, about 10 percent of the industry improved as much as five deciles of return on tangible equity over the past five years (though conversely, roughly two-thirds of the industry stayed within two deciles of their prior performance). For banking to recover its multiple, management teams will need to conjure the dynamism of these winners. We believe this \u0026ldquo;management quotient\u0026rdquo; will be what makes the real difference in the remaining years of the 2020s.\u003c/p\u003e\n\u003ch2\u003eThe industry\u003c/h2\u003e\n[[pullquote 1]]\n[[disruptor1up webcast]]\n\u003cp\u003eThere\u0026rsquo;s some solace in the witticism about it not being the end if it\u0026rsquo;s not fine. But recently, things have been fine indeed for banking, so what does that say about the endgame? In fact, the past two years have been the best for banking since before the Great Recession. Globally, banks generated $7 trillion in revenue (Exhibit 1) and $1.1 trillion in net income, with return on tangible equity (ROTE) reaching 11.7 percent. Banks have returned to healthy levels of capital (12.8 percent common equity tier one capital divided by risk-weighted assets) and liquidity (77.2 percent), which both improved over 2022. In fact, banking generated more total profit than any other sector around the world.\u003c/p\u003e\n[[exhibit 1]]\n\u003cp\u003eSo why the foreboding? Simply, global banking is valued at a price-to-book ratio of 0.9\u0026mdash;the lowest of all industries\u0026mdash;which suggests the market is expecting the industry will erode economic value as a whole (Exhibit 2). And this challenge exists across most markets. There are many potential reasons for it:\u003c/p\u003e\n[[exhibit 2]]\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eThe improvement in returns could be fleeting\u003c/em\u003e. Looking back, while the industry has reduced costs and kept credit quality high, the improvement in returns since 2021 appears to be largely owed to rising interest rates (Exhibit 3). Modeling, while imperfect, suggests that without rate support, industry ROTE in many geographies would have been around 8 percent, or below cost of capital. If one believes that rates will be lower than they are today, some of our scenarios suggest the industry\u0026rsquo;s ROTE could revert to near its cost of equity over the next two years.\u003c/li\u003e\n\u003c/ul\u003e\n[[exhibit 3]]\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eThe wide variations in the industry across subsectors and geographies may skew how certain institutions are viewed relative to others.\u003c/em\u003e Structure and mix could significantly influence how individual banks fare as conditions change. In some countries, including the United States, the United Kingdom, India, Germany, and Nigeria, performance improved in 2023 versus the 2010\u0026ndash;22 period, while other countries, like Brazil, Canada, China, Japan, and Australia, saw lower ROTEs.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eBanks may not be able to count on raising productivity or harnessing scale\u003c/em\u003e. These continue to be conundrums for banks in many regions of the world. AI hasn\u0026rsquo;t yet proved a panacea (though quite recently, some leading banks that have been first movers have publicly announced efficiencies from AI\u0026mdash;for some of them in the billions of dollars, already worth as much as a point of efficiency ratio). Despite a global total of approximately \u003ca href=\"/industries/financial-services/our-insights/unlocking-value-from-technology-in-banking-an-investor-lens\"\u003e$600 billion being spent by banks on tech\u003c/a\u003e\u0026nbsp;that should be boosting productivity, labor productivity in some major markets (for example, the United States) is declining.[[footnote 1]] AI could change that, but at most banks, generative AI is currently in pilot mode. And with it comes more spending and more regulatory requirements, so many banks have adopted a cautious posture.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eImprovement in margins may not be able to come from more cost cutting\u003c/em\u003e. To maintain current ROTE in the face of some macro-driven scenarios, the industry would need to reduce its cost per asset by 5 percent per annum, or five times the industry\u0026rsquo;s historic performance of 1 percent reduction per annum (Exhibit 4).\u003c/li\u003e\n\u003c/ul\u003e\n[[exhibit 4]]\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eAttackers continue to pressure incumbents\u003c/em\u003e. As we described in last year\u0026rsquo;s Global Banking Annual Review, about two-thirds of financial asset value growth was in off-balance-sheet assets (for example, mutual funds and alternatives).[[footnote 2]] Nontraditional competitors (for example, nondepository companies and private capital) and well-funded neobanks peck at the largest profit pools.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eMacro uncertainties and industry-level issues also pose challenges:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003eThe cost of funds for banks could increase, driven by continued quantitative tightening that reduces total deposit volumes (\u0026ndash;6 percent CAGR since 2021 in the United States and \u0026ndash;10 percent at European Central Bank) and increased competition with money market flows in some markets.\u003c/li\u003e\n \u003cli\u003eLoan originations face the dual challenge of declining consumer and corporate demand. For example, US commercial real estate (CRE) originations are down 55 percent from their pandemic peak and 25 percent below their ten-year average. At the same time, existing assets face potential devaluations\u0026mdash;some of which are yet to be fully realized. For example, CRE price index was down 9 percent in the fourth quarter of 2023 in the United States and the euro area. A reduction in interest rates may help to smooth some of these effects.\u003c/li\u003e\n \u003cli\u003eUnrealized losses for held-to-maturity securities are predictably burning off and will shrink, with revaluations at lower rates, potentially opening the aperture for M\u0026amp;A. But large-scale M\u0026amp;A hasn\u0026rsquo;t been a certain path to success.\u003c/li\u003e\n \u003cli\u003eOur projections for the original Basel III endgame impact on ROE were material. It remains to be seen what the recently released revised proposal will result in, but that could have a further moderating effect on ROTEs.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eAdd these challenges to the geopolitical uncertainties of the world today, and one can contextualize the impact on ROTE that the markets are foreseeing.\u003c/p\u003e\n[[Image 1]]\n\u003ch2\u003eAttaining escape velocity\u003c/h2\u003e\n[[pullquote 2]]\n\u003cp\u003eWe believe that banks wanting to attain escape velocity will need to operate very differently from today to \u0026ldquo;avoid gravity.\u0026rdquo; To understand how they could do this, we looked at the track record of performance by some leaders, hoping to find clues to their longer-term health.\u003c/p\u003e\n[[sidebar 1]]\n\u003cp\u003eAs we say this, it\u0026rsquo;s also important to note that banks are by nature fragile entities that first and foremost need to prioritize safety and soundness. Poor structural bets, like a lack of diversification by concentrating on one segment or over-rotating on a portfolio, can destroy banks through liquidity or credit quality. Some of the leading banks in the United States by the measure of ROE (and often, growth) from a few years ago were consumed by the regional banking disruption of 2023. Further back, prior to the GFC, the leaders were subprime originators. So when we look at winners, we\u0026rsquo;re cautious, looking at what they do through the lens of whether they are achieving their leadership prudently and sustainably.\u003c/p\u003e\n\u003cp\u003eWith that in mind, we identified potential winners from around the world (see sidebar \u0026ldquo;About our analysis\u0026rdquo;).\u003c/p\u003e\n\u003ch2\u003eThe winners\u003c/h2\u003e\n[[pullquote 3]]\n\u003cp\u003ePerhaps heeding the baseball sage\u0026rsquo;s advice, banking winners have achieved their position through a combination of both structural and execution moves. Neither strategy confers enduring advantages, but the combined effect puts banks in a position that\u0026rsquo;s market leading. Here\u0026rsquo;s what we observed:\u003c/p\u003e\n\u003ch3\u003eThere\u0026rsquo;s a path to escape velocity\u003c/h3\u003e\n\u003cp\u003eA total of 14 percent of banks are expected to create value and perform at a high level based on their current price-to-book multiple (more than one) and price-to-earnings multiple (more than 13), demonstrating that there\u0026rsquo;s a path to \u0026ldquo;escape gravity\u0026rdquo; in the industry. By comparison, about 62 percent of publicly traded companies outside of banking achieve this same threshold.\u003c/p\u003e\n\u003ch3\u003eThe path is more common now\u003c/h3\u003e\n\u003cp\u003eIn good news, higher performance is becoming more distributed across the industry (perhaps aided by the regulated nature of different markets). Today, 14 percent of banks account for 80 percent of the economic profit in the industry, up from 11 percent in 2013. The figure is almost five times the average of all other industries, where performance is far more concentrated in a few players.\u003c/p\u003e\n\u003ch3\u003eThe outperformance can be large\u003c/h3\u003e\n\u003cp\u003eOur analysis of TSR outperformers (in the United States) shows that there\u0026rsquo;s a wide dispersion in performance: 14 points between the top and bottom deciles across 90 top US banks between 2013 and 2023. Four operational metrics, along with avoiding risk, largely explain most of the outperformance of TSR: \u003cem\u003erevenue growth\u003c/em\u003e (34 percent); \u003cem\u003ebetter net interest margin management\u003c/em\u003e (34 percent) from lower cost deposit-gathering strategies or better distribution and credit risk management;\u003cem\u003e growing fee income\u003c/em\u003e (16 percent) from expansion in advisory services, wealth management, and other fee-heavy businesses; and \u003cem\u003ecost efficiency\u003c/em\u003e (5 percent).\u003c/p\u003e\n\u003ch3\u003eWhere you operate matters\u003c/h3\u003e\n\u003cp\u003eAbout one-third of these institutions are in attractive banking markets (for example, Australia, Canada, and India) that demonstrate high margins and strong fundamentals (for example, demand for credit, demographics, and economic growth) (Exhibit 5).\u003c/p\u003e\n[[exhibit 5]]\n\u003ch3\u003ePerformance also matters\u003c/h3\u003e\n\u003cp\u003eEndowment or structure\u0026mdash;or where you operate\u0026mdash;isn\u0026rsquo;t the only thing that matters. Institutions have achieved and sustained high levels of performance through deliberate strategic choices around structure and bold moves around execution.\u003c/p\u003e\n\u003cp\u003eWhat do these banks look like? Since comparing widely varying geographies is pointless, we normalized some features to common benchmarks. The outperformers\u0026rsquo; revenue growth is 1.5 times their local GDP growth, their fee-to-revenue ratio is typically 40 percent or higher, their efficiency ratio is lower than 50 percent, and their risk costs are generally well-managed enough through the cycle to be significantly below their reference industry\u0026rsquo;s costs.\u003c/p\u003e\n\u003ch2\u003eWhere to compete (structure)\u003c/h2\u003e\n\u003cp\u003eWinners have at least one of three structural markers that drive their performance:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003ePicking and decisively committing to the right segments for growth while avoiding the trap of over-rotating into them\u003c/em\u003e. Investing in growth by client segment or product type but not tipping to a point of concentrating exposure is crucial. Some winners have grown their commercial portfolios that inherently carry lower expense ratios, thereby lowering the institutions\u0026rsquo; overall expenses. Others have leveraged their platforms in sectors like wealth and payments.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eFinding scale where it matters to drive productivity and acquisition\u003c/em\u003e. While in some countries, finding economies of scale is elusive at the overall industry level, scale does exist in pockets, and finding out how to harness it can thus have a significant effect. Some winners have found those pockets and doubled down on their position to create more margin by moving up the scale curve.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eOptimizing location\u0026mdash;either geographically or in the customer value chain\u003c/em\u003e. Positioning is clearly important, and some banks have chosen to shape their footprint either transnationally in countries or domestically in states and provinces that show higher-than-average economic prospects. Other banks have occupied strategic positions along the value chain.\u003c/li\u003e\n\u003c/ul\u003e\n\u003ch2\u003eHow to win (execution)\u003c/h2\u003e\n\u003cp\u003eExecution excellence also provides an edge. For many institutions, there are limits to what can be done structurally (for example, shifting geographies and entering more attractive lines of business). More disciplined focus can be on targeting specific profit pools, more granular pricing capabilities, and better tailored customer segments for growth, among other approaches.\u003c/p\u003e\n\u003cp\u003eThe following are some execution-based approaches we observed among the winners across the globe:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eDeepening relationships (one customer-centric bank and ecosystems). \u003c/em\u003eThis is particularly a factor in the corporate space. Delivering the right mix of mutually reinforcing businesses across balance-sheet-intensive and fee-generating activities spreads the cost of acquisition of an expensive customer across more of the bank.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eAchieving retail or small and medium-size business (SMB) customer primacy through a personalized funnel. \u003c/em\u003eA North American leader has retooled itself to create a more personalized experience for its customers, focusing on products like wealth and home equity to create rapid cycle propositions (as many as four marketing campaigns a month). It has attached that to a segmentation that drives who answers the phone, the script used, and ultimately what kinds of ongoing servicing support the customer experiences.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eLeveraging granular pricing and risk selection\u003c/em\u003e. A leader that had long prided itself on both customer access and speed of decision making realized a few years ago that these two edges were being competed away by the ubiquity of digital offers and the inevitable compression of decision-making time. Indeed, in its market today, the vast majority of approvals are achieved in a matter of hours.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eBuilding world-class lead generation in wealth management\u003c/em\u003e. A wealth manager with a large team of financial advisers decided to fundamentally shift its approach to lead generation and economics. The institution recognized that there were three outsize drivers of capturing \u0026ldquo;money in motion\u0026rdquo;: the right offer, the right time, and delivery through the right channel. Getting these three things right is delivering a propensity to convert that\u0026rsquo;s almost 20 times higher than peers.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eAchieving retail or SMB customer primacy through mobile-orchestrated distribution.\u003c/em\u003e A winner that operates in a digitally forward nation has invested heavily in making the shift from thinking about an omnichannel distribution strategy to using one that\u0026rsquo;s truly mobile orchestrated. It has elevated mobile as the orchestrator of all customer journeys; standardized all other channel operations; moved many services that require specialized expertise into a remote advisory model; and invested in orchestration across the customer relationship management, funnel management, and customer value management systems.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eUsing strategic talent management to win with clients and unlock productivity. \u003c/em\u003eSome winners are focusing on their return from talent and using their people to differentiate their client value proposition. They have created a strategic HR capability to recruit candidates in days instead of months, compensate at the top quartile, maintain employee satisfaction scores, and inspire their workforces to go above and beyond to serve their customers.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003ePicking the right spots in wholesale banking to win\u003c/em\u003e. A regional wholesale bank recognized that it would never reach the scale to win. Instead, it built vertically integrated sector offerings to become the destination institution for companies in those sectors. It invested deliberately in talent, footprint, marketing, and thought leadership to build its brand in these areas.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eBuilding an AI-enabled bank.\u003c/em\u003e While intelligence that\u0026rsquo;s truly artificial is still emerging, there are a few leading institutions that have leaned very heavily into using advanced analytics, which include machine learning, deep learning, and more recently, generative AI and other approaches. They have built this into their cultural fabric and operating models.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eUsing proven operating models to unleash speed at scale, safely. \u003c/em\u003eSeveral winners have built (and branded) their operating models. These are variations of \u0026ldquo;digital factories,\u0026rdquo; \u0026ldquo;product and platform,\u0026rdquo; or more aggressively, \u0026ldquo;independent mini-companies\u0026rdquo; that are able to operate under the same umbrella with more independence while automating a large portion of common services.\u003c/li\u003e\n\u003c/ul\u003e\n[[Image 2]]\n\u003ch2\u003e\u0026lsquo;Management quotient\u0026rsquo; as a differentiator\u003c/h2\u003e\n\u003cp\u003eAbout 10 percent of global banks have been successful at raising their performance by as much as five or more deciles of the industry\u0026rsquo;s ROTE distribution, showing that breakout performance is indeed possible in this sector (Exhibit 6). But overall, our analysis shows that there doesn\u0026rsquo;t seem to be a lot of relative positional movement in the industry. Only 5 percent of banks dropped their performance by five or more deciles, about half the industry remained within one decile of its starting position, and roughly two-thirds of the industry remained within two deciles of its starting position.\u003c/p\u003e\n[[exhibit 6]]\n\u003cp\u003eThese figures speak to how hard improving performance is. The industry is rife with examples of well-intentioned ideas and initiatives that didn\u0026rsquo;t anticipate second-order effects that weren\u0026rsquo;t sustained over time (for example, cost-cutting programs that lasted two years only to see costs \u0026ldquo;walk back in the door\u0026rdquo;) or that ran at cross purposes (for example, poorly designed mobile apps that led to increases in call center volumes instead of the reductions planned in the business case).\u003c/p\u003e\n\u003cp\u003eGiven the market\u0026rsquo;s current view of banking and the gravitational forces at work, management teams can seize the moment to separate from the pack and create real dynamism by answering five core questions:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eThe hand you have been dealt\u003c/em\u003e. Given market structure matters (fragmented versus concentrated, public versus private, and global versus national versus regional versus community focused), what\u0026rsquo;s your thesis about how the fundamental economics in your specific market will play out? What are the empirical drivers of your and your competitors\u0026rsquo; market values that could realistically be influenced to drive relative competitive advantage?\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eThe hand you play\u003c/em\u003e. Once you have isolated and accounted for market-structure-oriented drivers of enterprise value, how much of the residual value gap to your competitors can be closed by further harnessing endowments your bank enjoys (for example, brand and community loyalty)? How much would need to rely on execution factors (for example, moves you make and businesses you grow into)?\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTilting the scales.\u003c/em\u003e Where are the points of disproportionate structural leverage (for example, via scale, portfolio mix, and relationship depth)? Where are the points of disproportionate executional leverage (for example, from better risk selection, talent selection, pricing, and marketing)? How much of this leverage is organically capturable?\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eFriction or frictionless\u003c/em\u003e. Is your operating model set up to translate ideas to actions fluidly, or does it sometimes feel like you\u0026rsquo;re wading in mud when trying to get things done internally? What exactly is getting in your way? What can be learned and adapted from more nimble executors?\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eImprovidus, apto, quod victum\u003c/em\u003e.[[footnote 3]] How fast do you tack to changing trends and competitors\u0026rsquo; moves? Who are the \u0026ldquo;beacons\u0026rdquo; you have set yourself and your management team to emulate, so you can leap ahead?\u003c/li\u003e\n\u003c/ul\u003e"},"isFullScreenInteractive":{"boolValue":false},"hideStickySocialShareBar":{"boolValue":false},"desktopID":{"value":""},"mobileID":{"value":""},"desktopURL":{"value":""},"mobileURL":{"value":""},"desktopPaddingPercentage":{"value":""},"mobilePaddingPercentage":{"value":""},"desktopOverrideHeight":{"value":""},"mobileOverrideHeight":{"value":""},"cerosOembedURL":{"value":""},"cerosRenderMode":{"targetItem":null},"cerosBackgroundColor":{"targetItem":null},"hideByLine":{"boolValue":true},"tableOfContentsTitle":{"value":"TABLE OF CONTENTS"},"accessStatus":{"targetItem":{"key":{"value":"RegisteredUsers"},"value":{"value":"Registered Users"}}},"articleType":{"targetItem":{"displayName":"Report"}},"hasSpecialReport":{"boolValue":true},"contentType":{"targetItem":{"displayName":"Article"}},"sourcePublication":{"targetItem":null},"externalPublication":{"value":""},"mobileReady":{"boolValue":false},"forClientsOnly":{"boolValue":false},"excludeFromClientLink":{"boolValue":false},"originalPublishDate":{"jsonValue":{"value":"2024-10-17T00:00:00Z"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eGregor Petri, Jeff Casey, and Debbie Buckland, \u0026ldquo;2024 outlook: Enterprise IT spending forecast for banking and investment services,\u0026rdquo; Gartner, December 4, 2023.\u003c/li\u003e\n \u003cli\u003e\u0026ldquo;\u003ca href=\"/industries/financial-services/our-insights/global-banking-annual-review-2023\"\u003eGlobal Banking Annual Review 2023: The great banking transition\u003c/a\u003e,\u0026rdquo; McKinsey, October 10, 2023.\u003c/li\u003e\n \u003cli\u003eImprovise, adapt, and overcome.\u003c/li\u003e\n\u003c/ol\u003e"},"contributoryPractice":{"targetItems":[{"displayName":"Financial Services"}]},"aboutTheAuthors":{"value":"\u003cp\u003e\u003cstrong\u003e\u003ca href=\"/our-people/asheet-mehta\"\u003eAsheet Mehta\u003c/a\u003e\u003c/strong\u003e\u0026nbsp;is a senior partner in McKinsey\u0026rsquo;s New York office, \u003cstrong\u003e\u003ca href=\"/our-people/karim-thomas\"\u003eKarim Thomas\u003c/a\u003e \u003c/strong\u003eis a partner in the Bay Area office, \u003cstrong\u003e\u003ca href=\"/our-people/klaus-dallerup\"\u003eKlaus Dallerup\u003c/a\u003e\u003c/strong\u003e is a senior partner in the Copenhagen office, \u003cstrong\u003e\u003ca href=\"/our-people/luca-pancaldi\"\u003eLuca Pancaldi\u003c/a\u003e\u003c/strong\u003e is a senior partner in the Milan office, \u003cstrong\u003e\u003ca href=\"/our-people/miklos-dietz\"\u003eMikl\u0026oacute;s Dietz\u003c/a\u003e\u003c/strong\u003e is a senior partner in the Vancouver office, \u003cstrong\u003e\u003ca href=\"/our-people/pradip-patiath\"\u003ePradip Patiath\u003c/a\u003e\u003c/strong\u003e is a senior partner in the Miami office,\u0026nbsp;\u003cstrong\u003eValeria Laszlo\u003c/strong\u003e\u0026nbsp;is a senior asset leader in the Budapest office, and\u0026nbsp;\u003cstrong\u003e\u003ca href=\"/our-people/vik-sohoni\"\u003eVik Sohoni\u003c/a\u003e\u003c/strong\u003e is a senior partner in the Chicago office.\u003c/p\u003e\n\u003cp\u003eThe authors wish to thank the following colleagues for their contributions to this report: Amit Garg, Andres Vasconez, Anubhav Das, Anuj Gupta, Cage Brewer, Candelaria Casado, Cristina Catania, Debopriyo Bhattacharyya, Dmitry Devyaterikov, Eckart Windhagen, Eszter Teszarik, Fuad Faridi, Jay Datesh, Jeffrey Condon, John Spivey, Jonathan Godsall, Kate McCarthy, Lisa Gross, Luigi Crevoisier, Marie-Claude Nadeau, Marti Riba, Matthieu Lemerle, Max Fl\u0026ouml;totto, Megha Kansal, Milana Mukiyeva, Omar Quintero, Robert Byrne, Rushabh Kapashi, Sergey Khon, Tim Bacon, Vishnu Sharma, Xavier Lhuer, and Zane Williams.\u003c/p\u003e"},"authors":{"targetItems":[{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"4C606119DDC645CA82519AB1B952026B","name":"Asheet Mehta","authorTitle":{"value":"Asheet Mehta"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/asheet mehta/asheet mehta_6846_v2_fc-crop_profile_1536x1152.png","alt":""},"emailLinks":{"value":"Asheet_Mehta@mckinsey.com"},"linkedInUrl":{"value":""},"description":{"value":"Leads the Financial Services Practice in the Americas and coleads globally, helping clients on their most complex strategic and organizational problems leading to sustainable performance improvement."},"locations":{"targetItems":[{"name":"New York","displayName":"New York"}]},"firmTitle":{"value":"Senior Partner"},"thumbnailImage":{"alt":"","src":"/~/media/mckinsey/our people/asheet mehta/asheet mehta_6846_v2_fc-crop_headshot_988x741.png"},"url":{"path":"/our-people/asheet-mehta"}}]}},{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"B265A19BF9864E9287E28BBE3BC6DC1E","name":"Karim Thomas","authorTitle":{"value":"Karim Thomas"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/karim thomas/karim-thomas_profile_1536x1152.jpg","alt":""},"emailLinks":{"value":""},"linkedInUrl":{"value":""},"description":{"value":"Advises a wide range of financial institutions—from banks to cooperatives to investors—on strategy, operating, and organization models; digital transformation; customer experience; and enterprise agility"},"locations":{"targetItems":[{"name":"Bay Area - Silicon Valley","displayName":"Bay Area - Silicon Valley"}]},"firmTitle":{"value":"Partner"},"thumbnailImage":{"alt":"","src":"/~/media/mckinsey/our people/karim thomas/karim-thomas_headshot_988x741.jpg"},"url":{"path":"/our-people/karim-thomas"}}]}},{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"050C1F5BBCB04C5191EE80FAFED5373D","name":"Klaus Dallerup","authorTitle":{"value":"Klaus Dallerup"},"description":{"value":"Advises clients within the financial, private-equity, and technology sectors on a variety of issues, including digital, strategic, and operational transformations"},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/klaus dallerup/klaus-dallerup_profile_1536x1152_2.jpg","alt":"Klaus Dallerup"},"emailLinks":{"value":""},"linkedInUrl":{"value":""},"description":{"value":"Serves as the managing partner of McKinsey Denmark and advises clients within the financial, private-equity, and technology sectors on a variety of issues, including digital, strategic, and operational transformations"},"locations":{"targetItems":[{"name":"Copenhagen","displayName":"Copenhagen"}]},"firmTitle":{"value":"Senior Partner"},"thumbnailImage":{"alt":"Klaus Dallerup","src":"/~/media/mckinsey/our people/klaus dallerup/klaus-dallerup_headshot_988x741.jpg"},"url":{"path":"/our-people/klaus-dallerup"}}]}},{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"CA48AD3B8EDC48C389E1EA42976A7264","name":"Luca Pancaldi","authorTitle":{"value":"Luca Pancaldi"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/luca pancaldi/luca-pancaldi-_fc_mask_profile_1536x1152.jpg","alt":"Luca Pancaldi"},"emailLinks":{"value":"Luca_Pancaldi@mckinsey.com"},"linkedInUrl":{"value":"https://www.linkedin.com/in/luca-pancaldi-7144524/"},"description":{"value":"Leads our transformation work in the Mediterranean region; advises companies on a range of issues with a focus on strategy, risk management, resilience, advanced analytics, and growth acceleration"},"locations":{"targetItems":[{"name":"Milan","displayName":"Milan"}]},"firmTitle":{"value":"Senior Partner"},"thumbnailImage":{"alt":"Luca Pancaldi","src":"/~/media/mckinsey/our people/luca pancaldi/luca-pancaldi-_fc-mask_headshot_988x741.jpg"},"url":{"path":"/our-people/luca-pancaldi"}}]}},{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"A190412FE795494288C15B6184D8C543","name":"Miklos Dietz","authorTitle":{"value":"Miklós Dietz"},"description":{"value":"Helps financial services companies and other organizations harness digital technology and stay ahead of emerging trends "},"thumbnailImage":{"alt":"","src":"/~/media/mckinsey/industries/financial services/banking blog/brick by brick building the bank of the future via housing ecosystems/miklos.jfif"},"profile":{"targetItems":[]}},{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"09796725596D434A8B3470BA606C1466","name":"Pradip Patiath","authorTitle":{"value":"Pradip Patiath"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/pradip patiath/pradip patiath_2046-1_fc-mask_profile_1536x1152.png","alt":""},"emailLinks":{"value":"Pradip_Patiath@McKinsey.com "},"linkedInUrl":{"value":"https://www.linkedin.com/in/pradippatiath/"},"description":{"value":"Advises financial institutions on transforming their performance and achieving superior growth with digital and analytics"},"locations":{"targetItems":[{"name":"Miami","displayName":"Miami"}]},"firmTitle":{"value":"Senior Partner"},"thumbnailImage":{"alt":"","src":"/~/media/mckinsey/our people/pradip patiath/pradip patiath_2046-1_fc-mask_headshot_988x741.png"},"url":{"path":"/our-people/pradip-patiath"}}]}},{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"738952796F66455AAD8DDCBDAC5BC52D","name":"Vik Sohoni","authorTitle":{"value":"Vik Sohoni"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/vik sohoni/vik sohoni_std_img.jpg","alt":""},"emailLinks":{"value":"Vik_Sohoni@mckinsey.com"},"linkedInUrl":{"value":"https://www.linkedin.com/in/viksohoni"},"description":{"value":"Helps banks and financial institutions on strategy and operating model transformation in addressing growth, efficiency and digital change"},"locations":{"targetItems":[{"name":"Chicago","displayName":"Chicago"}]},"firmTitle":{"value":"Senior Partner"},"thumbnailImage":{"alt":"","src":"/~/media/mckinsey/our people/vik sohoni/vik sohoni_thumbnail_img.jpg"},"url":{"path":"/our-people/vik-sohoni"}}]}}]},"nonPartnerAuthors":{"targetItems":[{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"C42938C2364D4982947B3FD5381A30A1","name":"Valeria Laszlo","authorTitle":{"value":"Valéria László"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[]}}]},"interactiveToUse":{"targetItem":null},"enableArticleComponents":{"boolValue":false},"relatedArticles":{"targetItems":[{"sourcePublication":{"targetItem":null},"publicationSource":null,"externalPublication":{"value":""},"title":{"value":"Global Banking Annual Review 2023: The Great Banking Transition"},"url":{"path":"/industries/financial-services/our-insights/global-banking-annual-review-2023"},"eyebrow":{"targetItem":{"name":"Report"}},"articleType":{"targetItem":{"name":"Report"}},"contentType":{"targetItem":{"name":"Article"}},"description":{"value":"Banking profits are up, thanks to rising interest rates, but financial institutions globally need to reinvent themselves in the face of major structural and macroeconomic shifts."},"standardImage":{"src":"/~/media/mckinsey/industries/financial services/our insights/global banking annual review 2023/gbar2023-1414988641-thumb-1536x1536-vf.jpg","alt":"A multilayered puzzle with numerous labyrinth balls maneuvering through ever-shifting, multi-colored mazes, symbolizing the overarching theme of a significant transition."},"heroImage":null,"thumbnailImage":null},{"sourcePublication":{"targetItem":null},"publicationSource":null,"externalPublication":{"value":""},"title":{"value":"McKinsey\u0026rsquo;s Global Banking Annual Review archive: 2014 to 2022"},"url":{"path":"/industries/financial-services/our-insights/global-banking-annual-review-archive"},"eyebrow":{"targetItem":{"name":"Report"}},"articleType":{"targetItem":{"name":"Report"}},"contentType":{"targetItem":{"name":"Article"}},"description":{"value":"Updated annually, our Global Banking Annual Review offers the best of our research and insights into the global banking industry. 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A pair of horizontal segmented bars compares sources and uses of funds, and underneath a tree map measures share of total annual revenue from global financial intermediation, by type.\u003c/p\u003e\n\u003cp\u003eThe bar graph is categorized into on-balance sheet and off-balance sheet items. On-balance sheet items for source of funds include banks\u0026rsquo; bonds, other liabilities, and equity ($59 trillion); corporate and public deposits ($52 trillion); and personal deposits ($65 trillion). Off-balance sheet items include sovereign wealth funds and pension funds ($32 trillion), retail assets under management (AUM) ($78 trillion), private capital ($10 trillion), insurance and pension AUM ($66 trillion), other alternatives ($9 trillion), other institutional AUM ($39 trillion), and digital assets ($1 trillion).\u003c/p\u003e\n\u003cp\u003eOn-balance sheet items for uses of funds include retail loans ($49 trillion), securities held on balance sheet ($60 trillion), corporate and public loans ($60 trillion), and other assets ($10 trillion). Off-balance sheet items include government bonds ($62 trillion), corporate bonds ($17 trillion), equity securities ($61 trillion), securitized loans ($12 trillion), and other investments ($79 trillion).\u003c/p\u003e\n\u003cp\u003eThe tree map shows the 2023 share of total annual revenue from global financial intermediation, by type. Retail banking leads with 33%, followed by corporate and commercial banking at 28%, payments at 16%, wealth and asset management at 14%, investment banking at 5%, other sources at 3%, and market infrastructure at 2%. The 2023 total revenue from global financial intermediation is $6.8 trillion.\u003c/p\u003e\n\u003cp\u003eFootnote 1: Assets under management.\u003c/p\u003e\n\u003cp\u003eFootnote 2: Including endowments and foundations, corporate investments.\u003c/p\u003e\n\u003cp\u003eFootnote 3: Including real estate, commodities, cross-border deployments, derivatives.\u003c/p\u003e\n\u003cp\u003eFootnote 4: Figures do not sum to 100%, because of rounding.\u003c/p\u003e\n\u003cp\u003eFootnote 5: Net interest income from deposits considered in retail and corporate banking.\u003c/p\u003e\n\u003cp\u003eFootnote 6: Includes revenues from real estate funds, infrastructure funds, hedge funds, commodities funds, absolute return, liquid alternatives, as well as from mining, buying and selling of digital assets via exchanges, custody, payments, and liquidity providers.\u003c/p\u003e\n\u003cp\u003eSource: McKinsey Panorama\u003c/p\u003e\n\u003cp\u003eEnd of image description.\u003c/p\u003e"},"mobileImage":{"alt":"","src":null},"renderMode":{"targetItem":{"key":{"value":"Medium content column width"},"value":{"value":"medium"}}},"flourishDataVisualizationID":{"value":""},"pNGImage":{"src":null,"alt":""},"height":{"value":""},"width":{"value":""},"mobileSVGImage":{"src":null,"alt":""},"mobilePNGImage":{"src":null,"alt":""}},{"id":"8076919B0CAE447899CABBE9B2F0D090","displayName":"Exhibit 2","mediaID":{"value":"2"},"includeTheAccessibilityDisclaimerText":{"boolValue":false},"headline":{"jsonValue":{"value":""}},"hideBottomBorder":{"boolValue":false},"hideEyebrow":{"boolValue":false},"eyebrow":{"jsonValue":{"value":""}},"displayNumber":{"value":"2"},"description":{"jsonValue":{"value":""}},"desktopImage":{"alt":"Capital markets place a large and growing valuation discount on banking relative to other industries. ","src":"/~/media/mckinsey/industries/financial services/our insights/global banking annual review 2024 attaining escape velocity/gbar-2024-ex2.svgz","description":"\u003cp\u003eImage description:\u003c/p\u003e\n\u003cp\u003eAn exhibit shows 2 stacked graphs: a line chart comparing the price-to-book ratio of the global banking industry to all other industries from 2003 to 2023, and a vertical bar chart showing the 2023 price-to-book ratio by industry.\u003c/p\u003e\n\u003cp\u003eIn 2003, the line chart shows the global banking industry\u0026rsquo;s price-to-book ratio was ~2.0x, while all other industries averaged ~2.7x. By 2023, the banking industry\u0026rsquo;s price-to-book ratio was ~1.0x, while all other industries averaged ~2.8x, marking a 68% difference.\u003c/p\u003e\n\u003cp\u003eIn 2023, the vertical bar chart shows the technology, media, and telecom industry leading with a price-to book ratio of 4.7x, followed by business services at 4.5x and pharmaceutical and medical products at 4.1x. The global banking industry has a lower ratio of 0.9x, highlighting a valuation discount compared with other industries. Nondepository financial institutions are positioned midrange, with a ratio of 2.7x.\u003c/p\u003e\n\u003cp\u003eFootnote 1: Average excluding outliers and firms with a negative price-to-book ratio. 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Revenue margins are projected to decrease from 3.1% in 2023 to 2.7% in 2030 (a CAGR of \u0026ndash;2%), while cost to assets are expected to drop from 1.3% in 2023 to 0.9% in 2030 (a CAGR of \u0026ndash;5%). This suggests that banks will need to reduce costs ~2.5x faster than the decline in revenues to sustain current ROTE margins.\u003c/p\u003e\n\u003cp\u003eSecond, a line chart shows historical and projected cost-to-asset ratios from 2010 to 2030. While historical ratios remained stable, fluctuating between 1.2 and 1.6% (with a CAGR of \u0026ndash;1%), the projected ratios indicate a sharper decline, dropping from 2023 onwards to ~0.9% by 2030, suggesting that an annual reduction of 5% is necessary to maintain 2023 value creation levels.\u003c/p\u003e\n\u003cp\u003eFootnote 1: Revenue margin is defined as net interest revenue + fee and commission revenue divided by outstanding balances.\u003c/p\u003e\n\u003cp\u003eFootnote 2: For an average global bank.\u003c/p\u003e\n\u003cp\u003eSource: Economist Intelligence Unit, Oxford University; McKinsey Panorama; McKinsey Value Intelligence\u003c/p\u003e\n\u003cp\u003eEnd of image description.\u003c/p\u003e"},"mobileImage":{"alt":"","src":null},"renderMode":{"targetItem":{"key":{"value":"Medium content column width"},"value":{"value":"medium"}}},"flourishDataVisualizationID":{"value":""},"pNGImage":{"src":null,"alt":""},"height":{"value":""},"width":{"value":""},"mobileSVGImage":{"src":null,"alt":""},"mobilePNGImage":{"src":null,"alt":""}},{"id":"82ABF395821645F78D980DCB3402A3E4","displayName":"Exhibit 5","mediaID":{"value":"5"},"includeTheAccessibilityDisclaimerText":{"boolValue":false},"headline":{"jsonValue":{"value":""}},"hideBottomBorder":{"boolValue":false},"hideEyebrow":{"boolValue":false},"eyebrow":{"jsonValue":{"value":""}},"displayNumber":{"value":"5"},"description":{"jsonValue":{"value":""}},"desktopImage":{"alt":"Value creation is uneven across the world.","src":"/~/media/mckinsey/industries/financial services/our insights/global banking annual review 2024 attaining escape velocity/gbar-2024-ex5-vf.svgz","description":"\u003cp\u003eImage description:\u003c/p\u003e\n\u003cp\u003eA bar graph compares the share of public banks with a price-to-book ratio of \u0026gt;1 and a price-to-earnings ratio of \u0026gt;13, by region, in 2023. Canada and US have the greatest share, with 21%, followed by emerging Asia (14%), Africa and the Middle East (11%), developed Asia (9%), Caribbean and Latin America (8%), Greater China (7%), and Europe (5%). The global average is 14%.\u003c/p\u003e\n\u003cp\u003eNote: N = 786, of which 112 are outperforming.\u003c/p\u003e\n\u003cp\u003eSource: McKinsey Value Intelligence; McKinsey analysis\u003c/p\u003e\n\u003cp\u003eEnd of image description.\u003c/p\u003e"},"mobileImage":{"alt":"","src":null},"renderMode":{"targetItem":{"key":{"value":"Medium content column width"},"value":{"value":"medium"}}},"flourishDataVisualizationID":{"value":""},"pNGImage":{"src":null,"alt":""},"height":{"value":""},"width":{"value":""},"mobileSVGImage":{"src":null,"alt":""},"mobilePNGImage":{"src":null,"alt":""}},{"id":"B3393CFA9AE14D439F68A03DD5C89184","displayName":"Exhibit 6","mediaID":{"value":"6"},"includeTheAccessibilityDisclaimerText":{"boolValue":false},"headline":{"jsonValue":{"value":""}},"hideBottomBorder":{"boolValue":false},"hideEyebrow":{"boolValue":false},"eyebrow":{"jsonValue":{"value":""}},"displayNumber":{"value":"6"},"description":{"jsonValue":{"value":""}},"desktopImage":{"alt":"About 10 percent of banks have moved up five or more deciles in return on tangible equity over the past ten years.","src":"/~/media/mckinsey/industries/financial services/our insights/global banking annual review 2024 attaining escape velocity/gbar-2024-ex6.svgz","description":"\u003cp\u003eImage description:\u003c/p\u003e\n\u003cp\u003eA segmented bar chart shows the share of banks that changed deciles in return on tangible equity from 2013 to 2023. At the center, the largest segment, at 18.5%, represents banks with no change in decile. To the right of center, the smaller segments show banks that increased deciles, with increasingly smaller segments representing larger jumps in profitability: 16.3% increasing by 1, 10% by 2, 7.2% by 3, 4.0% by 4, 3.2% by 5, 2.6% by 6, 1.3% by 7, and 1.7% by 8 or more deciles. To the left of center, the smaller segments indicate decreases: 12.9% decreasing by 1, 7.5% by 2, 6.1% by 3, 3.9% by 4, 2.2% by 5, 1.6% by 6, 0.7% by 7, and 0.2% by 8 or more deciles.\u003c/p\u003e\n\u003cp\u003eSource: McKinsey Panorama; McKinsey Value Intelligence\u003c/p\u003e\n\u003cp\u003eEnd of image description.\u003c/p\u003e"},"mobileImage":{"alt":"","src":null},"renderMode":{"targetItem":{"key":{"value":"Medium content column width"},"value":{"value":"medium"}}},"flourishDataVisualizationID":{"value":""},"pNGImage":{"src":null,"alt":""},"height":{"value":""},"width":{"value":""},"mobileSVGImage":{"src":null,"alt":""},"mobilePNGImage":{"src":null,"alt":""}}]},"image":{"results":[{"mediaID":{"value":"1"},"description":{"value":""},"libraryMediaFile":{"src":"/~/media/mckinsey/industries/financial services/our insights/global banking annual review 2024 attaining escape velocity/gbar-section1-1214717385-1536x600.jpg","alt":"\"\""},"height":{"value":""},"width":{"value":""},"renderMode":{"targetItem":{"key":{"value":"Center"},"value":{"value":"Center"}}}},{"mediaID":{"value":"2"},"description":{"value":""},"libraryMediaFile":{"src":"/~/media/mckinsey/industries/financial services/our insights/global banking annual review 2024 attaining escape velocity/gbar-section2-1280618640-1536x600.jpg","alt":"\"\""},"height":{"value":""},"width":{"value":""},"renderMode":{"targetItem":{"key":{"value":"Center"},"value":{"value":"Center"}}}}]},"exhibitcarousel":{"results":[]},"pullquote":{"results":[{"description":{"value":"Everything is going to be fine in the end. If it’s not fine, it’s not the end.\r\n"},"mediaID":{"value":"1"},"renderMode":{"targetItem":{"key":{"value":"center"},"value":{"value":"center-align"}}},"citation":{"value":"Unknown (often attributed to Oscar Wilde)"},"enableQuotes":{"boolValue":false},"CTA":{"url":"","linkType":"internal","text":"","target":"","className":"","queryString":"","anchor":"","targetItem":null}},{"description":{"value":"For things to stay the same, things will have to change.\r\n"},"mediaID":{"value":"2"},"renderMode":{"targetItem":{"key":{"value":"center"},"value":{"value":"center-align"}}},"citation":{"value":"Giuseppe Tomasi di Lampedusa (\u003cem\u003eThe Leopard\u003c/em\u003e, 1958) "},"enableQuotes":{"boolValue":false},"CTA":{"url":"","linkType":"internal","text":"","target":"","className":"","queryString":"","anchor":"","targetItem":null}},{"description":{"value":"When you come to a fork in the road, take it.\r\n"},"mediaID":{"value":"3"},"renderMode":{"targetItem":{"key":{"value":"center"},"value":{"value":"center-align"}}},"citation":{"value":"Yogi Berra"},"enableQuotes":{"boolValue":false},"CTA":{"url":"","linkType":"internal","text":"","target":"","className":"","queryString":"","anchor":"","targetItem":null}}]},"disruptorsignup":{"results":[{"mediaID":{"value":"full-width"},"renderMode":{"targetItem":{"key":{"value":"fullwidth"},"value":{"value":"Full Width"}}},"callToAction":{"url":"/user-registration/register-mvc","text":"Subscribe"},"title":{"jsonValue":{"value":"Stay current on your favorite topics"}}},{"mediaID":{"value":"left"},"renderMode":{"targetItem":{"key":{"value":"left"},"value":{"value":"Left"}}},"callToAction":{"url":"/user-registration/register-mvc","text":"Subscribe"},"title":{"jsonValue":{"value":"Stay current on your favorite topics"}}}]},"articlesidebar":{"results":[{"mediaID":{"value":"authors"},"description":{"jsonValue":{"value":"\u003cp\u003eThis report is a collaborative effort by \u003ca href=\"/our-people/asheet-mehta\"\u003eAsheet Mehta\u003c/a\u003e, \u003ca href=\"/our-people/karim-thomas\"\u003eKarim Thomas\u003c/a\u003e, \u003ca href=\"/our-people/klaus-dallerup\"\u003eKlaus Dallerup\u003c/a\u003e, \u003ca href=\"/our-people/luca-pancaldi\"\u003eLuca Pancaldi\u003c/a\u003e, \u003ca href=\"/our-people/miklos-dietz\"\u003eMikl\u0026oacute;s Dietz\u003c/a\u003e, \u003ca href=\"/our-people/pradip-patiath\"\u003ePradip Patiath\u003c/a\u003e, Valeria Laszlo, and \u003ca href=\"/our-people/vik-sohoni\"\u003eVik Sohoni\u003c/a\u003e, representing views from McKinsey\u0026rsquo;s Financial Services Practice.\u003c/p\u003e"}},"aboutTheAuthors":{"jsonValue":{"value":""}},"headline":{"jsonValue":{"value":"About the authors"}},"footnotes":{"value":""},"showShareTools":{"boolValue":false},"backgroundColor":{"targetItem":null},"gradientDirection":{"targetItem":{"key":{"value":"Bottom Right"},"value":{"value":"bottom-right"}}},"renderMode":{"targetItem":{"key":{"value":"Collapsible"},"value":{"value":"default"}}},"isAboutAuthor":{"boolValue":true},"background":{"targetItem":null},"image":{"src":null,"alt":""}},{"mediaID":{"value":"1"},"description":{"jsonValue":{"value":"\u003col\u003e\n \u003cli\u003eFirst, we looked at banks that have separated from the pack in both return on tangible equity (ROTE) and price-to-book multiples. This identified institutions that have outperformed their peers.\u003c/li\u003e\n \u003cli\u003eSecond, we looked at banks that have changed their position by more than five deciles of performance vis-\u0026agrave;-vis their starting point five years ago. This identified institutions that have been successful at changing their performance positively.\u003c/li\u003e\n \u003cli\u003eThird, we looked at banks that have consistently delivered above their cost of capital (a relative rarity in an industry where, between 2013 and 2023, the average bank globally generated a $1 million economic loss, a figure which would have been substantially higher without the recent interest rate increases). This identified consistent performers.\u003c/li\u003e\n \u003cli\u003eFinally, we looked at banks in the United States in the top decile of TSR, compared them with the bottom-decile banks, and then ran dozens of metrics through our models to unpack, statistically, the economic drivers of the top institutions\u0026rsquo; TSR. 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