Jeff Judy

Jeff's Thoughts - December 24, 2008


Another Year Gone, Another Year Coming . . .

It's that time of year again, when we look at what we have been through in the past twelve months, and try to guess what lies ahead.

You don't need me to tell you that we have had some significant changes in the financial world in the past year, and especially in recent months. Huge bail out programs, the collapse or forced "merger" of many institutions that were once leading lights in financial services, changes in interest rates, home values, consumer spending . . . you name it, and it's a lot different than it was a year ago!

It is easy to think that our current situation is unique, IF you haven't been in this business long enough to know better. When I look at all the current economic turmoil, and its impact on our industry, I am reminded of my days as a banker in the early 1980's. In fact, many people looking at the numbers are convinced that in the current economy we are no worse off than we were then.

As for extraordinary actions? Talk of bailing out the auto industry, for example, is inconceivable to some . . . particularly if they weren't around when the government bailed out Chrysler in 1979.

Many of the people who are on the front lines of our banks today haven't been through anything quite like this before. They have seen a few ups and downs, but they haven't been in the business long enough to experience some of the bigger swings that come along now and then.

Frankly, this is a time when being a bright young graduate, or an M.B.A. familiar with the latest analytical tools, isn't enough. It is a time when you want to look for that experience, either within or outside your institution (or both).

None of us can predict with any certainty how long these tough times will last, but the first thing those of us who have been through this before can tell you is that things will get better. The second thing we will tell you is that if you devote all your energy and resources to putting bandages on problems, and none of it to preparing for better times, you will be at the back of the pack when things settle down.

How do you stop the bleeding and prepare for better conditions at the same time? In the 1980's, the successful banks got back to basics. They made sure their credit policies were clear, and that absolutely everyone understood them. They improved their processes, reduced exceptions to standard procedures and to policy requirements, followed through on analysis and collateral review and sound structuring. Diligent monitoring allowed them the lead time for timely responses to potential problems, and they made sure all of their staff played by the same rules.

I expect to spend a lot of time, in the first part of 2009, helping banks rebuild those fundamental principles and practices. Having been through tough economic cycles -- sometimes really tough -- before, I know what it is like to improve processes and oversight even as you do battle with the crisis of the day. I know that when banks combine a firm belief in their ability to work their way through the current troubles with the perspective of those who have been through these situations before, they position themselves to pass their rivals when good times return.

Funny, when I was going through this in the early 80's, I wasn't particularly grateful for the experience! Now, however, I know that that experience is the key to making the best decisions about how to deal with the current mess.

It may take a while, but I am already looking forward to sharing in the success of the organizations that don't panic, that look ahead, that draw on past experience to gain valuable perspective, and that build on sound fundamentals to create brighter futures for themselves