Five Priorities When Bank Strategy Meets Business Continuity

Bank leaders need to be ready with a SWAT team approach when the next thing no one expected comes out of left field.

In today’s COVID-19 crisis and corresponding instant recession, banking leaders have no choice but to navigate the next 18 months with a blend of strategy and business continuity.

The authors of this column come from two different worlds:

• One is a former banker with a finance background who focuses on crafting and executing big picture strategic plans.
• The other is a former bank CIO, certified business continuity planner and manager of all things complex who gets paid to provide “cup half empty” perspectives that keep banks out of trouble.

For the past 60 days, banks have pulled out their disaster recovery plans and used parts and pieces of them to navigate an unforeseen landscape. As we approach the gradual “Great Return,” banks have made it through the tense activities of the “stabilize” phase and now it’s time to situate and reflect on business priorities and pressing needs going forward.

This is not the time to rest easy and consider the job done. While banks have increased VPN connectivity, provisioned new laptops, expanded video conferencing licenses and realigned branches to appointment/drive-through models, the real leadership test is just beginning.

The phased lifting of lockdowns across the states will not mean a return to normal, but rather a real-time test and learn process to understand what the next normal will be. It’s time for bank executives to double down on their crisis focus, dig into data, and work to address the five key priorities that will separate the winners from the casualties in the next 18 months. CEOs need to assign an executive to each priority with what Navy Seal Jocko Willink calls “extreme ownership.”

Priority #1: Stress Test Revenue and Build Response Plans

Banks are facing a triple threat to revenue:

• Margin compression will occur with the Fed’s moves to drop rates to rock bottom levels (holy cow, a .6% 10-year T-bond yield!). A 10bp slippage in net interest margin could come overnight. For every $1 billion in assets, that means $1 million in lost revenue. The ALM Committee has to become the “save our basis points” action team.
• Balance sheet growth will slow with less loan production after the bulk of PPP loans rolls off. The bank’s treasurer needs to own a plan to reinvest liquidity as best possible. In addition, it’s critical that an executive owns aggressive mortgage refi production to create loan sale gains that help offset margin compression and servicing value adjustments.
• With over 30% of non-interest income coming from card interchange, banks are seeing a major decline in swipe spend and are facing a serious hit to earnings from just the spending drop alone. CEOs need to assign “payment czars” who can get ahead of the curve by projecting card usage/mix and developing campaigns to increase usage as purchases gradually ramp up. Somebody needs to wake up every morning with the mandate to grow payments wallet share.

Priority #2: Elevate Risk Visibility

A cardinal rule of business continuity planning is that when the plan is activated in any manner, risk controls need to be doubled down. With entire banking teams working from home, the normal checks and balances of visibility have clearly been altered, and institutions need to double down on putting transparency in the process. An immediate step would be for the bank’s enterprise risk professionals to complete a review and issue findings of where normal visibility is not in place. Additionally, it’s time to get a payback on the institution’s recent investments in data warehouse and business intelligence resources. This team should be working overtime to create a top-notch credit risk analytics capability that will be ready when the walls rattle after loan payment deferrals end.

Priority #3: Realign Business Priorities and Operations

The drastic change in bank operations over the past few months has surely revealed operational inefficiencies, and they could be getting hairier every day. Because many operating changes could become permanent, it’s important that each business leader identifies key areas where manual processing, a lack of data integration or inconsistency in procedures are occurring. These operating deficiencies can be prioritized by the executive team based on impact, effort and risk, and then focused “sprints” should be executed on a continuous basis. Executives cannot assume these process changes will be made – they must create a visible tracking process at the top of the house.

Priority #4: Revitalize Sales and Marketing

Maintaining normal operations is challenging in these times; it’s even harder to maintain sales momentum. In competing against the too-big-to-fail crowd, local banks and credit unions will not find a better environment in which to gain market share. To be effective in gaining awareness and new customers, bankers need to maintain an unrelenting focus on their remote channel experience and the marketing and engagement that must be driven in non-traditional ways. The entire executive team should take a few minutes to review the digital account opening and loan processes, and to look at key moments of truth like card issuance, transaction disputes, requests for loan payments deferrals and general pleas for help. This daily, tenacious activity of removing friction points in the new operating model is a discipline that will certainly survive the COVID-19 crisis. Banks need to maintain “delinquent experience reports” the same way they track delinquent loan reports.

Priority #5: Redefine the Workplace

There will be no greater design challenge ahead than developing a workplace strategy that aligns with all that changes during the “Great Pause.” While all banks will follow safety guidelines and increased hygiene habits, the real challenges executives will face lie in adapting a culture that:

• demonstrates grit and tenacity during the emerging banking crisis;
• stays connected and accountable with more work taking place remotely; and
• values transparency, learning-on-the-fly and actions over analysis.

Right now, GonzoBankers have the opportunity to create a new vibrancy and resiliency in their organizations through hard work. As strategy innovator Kit Krugman concludes, “The decisions we make now will be encoded in our organizational psyche for the months and years that follow.”

One of the key things that both a banker and a CIO have learned over the years is that no plan survives the first day in its original form. This has been apparent every day for the last two months. Bank executives must buckle in, because no business continuity event goes on longer than a pandemic, and with time the odds increase exponentially that something is going to happen that no one saw coming. Now is the time for bank leadership groups to be standing ready to activate a SWAT team approach to the next thing that comes out of left field. There is no new normal until we establish it.

Stay safe, friends!