“Bank confidence is a fragile reed and a troubled bank is damaged by any rumors, true or not.” –Irvine Sprague, Former FDIC Director
So Gonzo Bankers … how many of us have been hesitant lately to check our iPhones each morning to see what trouble may have hit the fan in the financial world during a few restless hours of slumber?
Whatever their level of faith or religious denomination, banking leaders have been praying like crazy for one critical outcome in these volatile days of the banking crisis:Please, nobody panic.
The Twitter-fueled frenzy at Silicon Valley Bank illustrated how swiftly and horrifically TRUST can disappear in today’s financial world. At this crossroads moment, every banking and credit union leader in America needs to recognize that the institutional TRUST built over decades is on the ropes.
Upping our game to be TRUSTED by all stakeholders is a 24/7 priority right now for every banking executive. Maintaining and enhancing confidence and calm in this crazy moment requires that leaders remember the three fundamental elements of trust.
Competency– “This bank knows what the hell it’s doing.”
Consistency– “This bank delivers, and I know what to expect from them.”
Sincerity– “This bank cares about me and they will step up for my well-being.”
Here are key areas where bank executives need action plans to address burning challenges:
Communication– Bankers have been working to calm their customers and community, but the quantity and quality haven’t yet met the standard in an always-on social media world where the public is sniffing for transparency and authenticity. This crisis has revealed just how much improvement banks need in their social media playbooks and supporting talent. A traditional “remain calm … all is well” PR statement is not enough.
Liquidity– On both the liability and asset side, strategies to enhance balance sheet liquidity must play front and center. Investors are looking for data and a clear plan to comfort them. It’s a good time to surround the executive team with a diversity of smart advisors and capital market players. Importantly, bankers need to move quicker on “pricing to indifference” between the institution’s deposit rates and the sky-high treasury mutual fund yields. Balancing some pain on the cost of funds will be needed for banks to be trusted enough on the liquidity side of the house.
Capital– Losses on bonds on banks’ held-to-maturity portfolios have reduced bank tangible equity by roughly 200 basis points. If running the capital plan numbers indicates that growth needs to slow, banks will need new tactics to drive profitability, and a major focus will return to operating efficiencies.
Customer Experience– With customers jumpy and nervous, banks cannot afford to allow service lapses or information mistakes that could set off another wave of panic. Digital banking uptime, the speed and accuracy of moving money, and the ability to talk to informed bankers are vital right now. Reaching out to large depositors with white glove service should also be included in the customer playbook.
Enterprise Risk Management– Bankers should expect that the regulatory pendulum will swing quickly to a highly strident tone. The slow, evolving maturity of a bank’s enterprise risk program needs to speed up fast. Banks need to show they are focused on the operational and reputational risks that can accompany the capital and liquidity risks at hand. Additionally, regulators and investors are growing more concerned about credit risk when the economy slows. With today’s data tools, management needs to show they are on top of emerging credit issues with real-time information.
Governance– The hierarchy of trust starts with the board of directors. The full board and its committees need meaningful briefings on the bank’s current balance sheet and capital position. They need to be run through stress test scenarios and be able to demonstrate their “challenge” role at this time. Also, the board should have access to any advisors that would provide intelligent strategies and verification of the bank’s direction.
Employees– The most critical link in the chain of trust lies with the bank’s own employees. With the current situation, updates from leadership should be coming out at least weekly. Town hall formats to promote interaction and training/communication to the front line on how to address customer questions and concerns should also be utilized to keep the team engaged and confident in the bank’s action plan.
Whether it seems fair or not, bankers have just been jolted into a full-on battle to retain trust and confidence. Winning this battle takes an organized plan and a deeper level of engagement and transparency with all the bank’s stakeholders. So Gonzo Bankers, step up now and show your team’s competence, consistency, and sincerity as you prove just why our decentralized, grass-roots financial system is a strength in this country that needs to be protected and preserved.
“Banking is a very good business if you don’t do anything dumb.” –Warren Buffett