What the FDIC Chair’s Remarks Mean to You: What’s old is new again
On March 6th FDIC Chairman Martin Gruenberg’s remarks at the Institute of International Bankers Washington Conference focused on the challenges ahead in the banking industry. Although he ended his remarks by restating the risks banks face in working with non-banks, alluding to Fintech relationships, most of his remarks were about tried-and-true safety and soundness risk issues – meaning interest rate risk, liquidity risk, and credit risk. Specifically,
Increasing interest rates, and the resultant impacts:
- Decrease in business activity and loan demand
- Deposit outflow, which will impact liquidity risk
Credit risks, especially for:
- Credit cards and auto loans
- Leveraged commercial and industrial loans
- Commercial real estate loans, which are being impacted by rising vacancy rates
The remarks evidenced a pivot off of the attention normally paid to Information Security, BSA/AML, and Consumer Compliance risks, and back onto financial risks. Financial institutions of all sizes should revisit their policies/procedures that lie at the intersection of the lending departments and accounting/finance departments. These areas were in the spotlight after the financial crisis of 2008, but simmered down as the economy improved. During the Pandemic, most financial institutions were awash in liquidity, but not so much now. What’s old is new again.
Adding to the risks in these areas is the fact that staffing in the credit/accounting/finance departments at banks is challenged by the overall staffing shortage combined with the intense shortage of CPAs and other accounting professionals. Moreover, credit departments decreased staffing over the past 5 years as delinquencies were so low and this had led to a shortage of experienced commercial credit analysts. Financial institutions are forced to hire at the entry level, and train commercial credit analysts.
None of the above is meant to imply that Information Security, BSA/AML, and Consumer Compliance risks have gone away. It just means that the spotlight has returned to the financial/credit risks.
M & M Consulting, LLC has more that 40 years combined experience with Commercial Loan Review, so give us a call @ 413-455-2678 or reach out via our website www.mandm.consulting