I am in a very reflective mood today. I have been writing New Year’s resolutions for seven or eight years now, with ideas for your financial institution to contemplate as you head into the New Year. I have tried to give you current, up-to-date and important items to consider and have front of mind when you meet with all your stakeholders. So, I thought I would take a look at what I have suggested the last several years and will end with my thoughts for 2020.
Resolutions from the past
- CECL Implementation. I actually touched on this in 2014, and while it has been delayed for some, it is still coming and getting closer yet.
- Independent loan review coverage monitoring. We continue to hear from the regulatory bodies that they think credit underwriting is loosening but financial institutions are still strong. Since they feel credit risk may be showing stress in some places, we think it is a good idea to look forward and continue to look at some of your loan characteristics that may cause issues in an economy downturn.
- Interest rate and liquidity risk management. When I first started writing these, rates were stable; we were concerned they would rise faster than they actually did, and now they have decreased, so it is really important to look at the different scenarios and their impact on your earnings and capital. And liquidity risk management reviews are critical to make sure you have the processes in place should you need extra liquidity. We are still a liquid industry, but I would not want to repeat the issues some had during the Great Recession.
- Cybersecurity risk. We live with it everyday in our industry. We have a responsibility to protect our customer data, but we also must use our resources wisely. Do not hesitate to reach out to our resources in our cybersecurity team.
- New regulations. We continue to see new and fine-tuning of regulations. We have even seen some regulatory requirements lessen or at least reduce requirements based on asset size and loan size. Current regulations continue to add to our load, and the regulatory agencies are working on things like CRA—watch how that works. Furthermore, hemp and marijuana banking still muddy the BSA area. If you would like some peace of mind that you are up to date on where things stand, our ComplianceHelp service can assist you.
- FinTech. A local CEO mentioned at an association meeting last month that, “if you haven’t embraced FinTech, it’s too late.” I am not sure that is a totally true statement, but if you do embrace it, pay attention to your vendor management protocol. FinTech companies want to work in our industry, and as a result, they want to be as financial institution compliant as they can. Ask them about their IT and regulatory compliance management systems before you sign on the line.
- M&A and strategic planning. One cannot be done without the other, either on the buy or sell side. Succession planning and talent management also are important in this arena and should be an active part of your discussions. If you remain independent, then do you have the right talent to succeed your CEO? Who takes over when you leave and who takes your successor’s place? It’s a tight labor market, and fit and culture are so key to success.
I could continue to look to the past, but this is about the future. Yet, I don’t think I could add anything new to what I just touched on since they are as important in 2020 as they were in 2010 and will be in 2030. But it is 2020, a leap year and another presidential election year. (Where did that time go?) It will be important for us to watch as this unfolds and understand the candidates because no matter the outcome, there will be impact on our industry.
Managing risk is what we do every day. Manage it with an ERM view, in conjunction with your strategic plan, your risk tolerances, but with a rear window to the past and a large windshield to the future. I wish you a prosperous 2020 and a great year. As always, contact your relationship manager for help.