Jeff Judy

Jeff's Thoughts - March 3 , 2010

Banking in the Next Decade: Are You Building Your Response Infrastructure Now?

Commercial bankers can expect to operate in a very different landscape, in coming years, than the one they knew before the recession. Rather than try to engineer a return to where we were, our industry must evolve in response to new conditions, a different environment.

Now, we don't have the space here to fully describe that new landscape -- something I frequently address both in my writings and in my appearances at workshops and association meetings -- but the key feature is a much broader spectrum of risk, in which many levels and sources of risk can come together in different, and dangerous, combinations.

Those changing risk factors can be found in the legal and regulatory environment we face, in the public perception of our industry, and in the desperation of our customers, among other places. And if we want to remain among the living, as financial institutions, we have to respond, we have to adapt to altered conditions.

Revised processes and procedures are your first line of defense. Updated processes formalize the strategies you devise to deal with the new environment.

And once you change processes and procedures, your systems generally need to be updated. Reporting requirements have probably changed, both due to management decisions and external, regulatory pressures. Changes in products and services to suit this new world of banking require adjustments to the systems that support their delivery, monitoring, and follow up.

And, of course, employees need to understand the new procedures, and be able to work with the updated systems. That means that some explicit training and enhanced communication will be fundamental to achieving the best outcomes in the next decade. It takes serious effort, and application of resources, to change the way the front lines do things, after years of conducting business in what was a very stable business environment.

And that's the issue: deployment of resources, including time for planning and design, for communication and documentation, beyond what it takes to deal with your support systems. New conditions need an updated infrastructure, in essence, and building infrastructure takes time, money, and dedication.

Your institution has probably spent a lot of time, since the recession began, deciding how your business must change: what must be different about what you offer, what is different about the risks you and your borrowers face, what should be different about your relationships with customers. With luck, or wisdom, or both, your management is developing strategies to address a new banking landscape, and not just holding out for a return to what you used to think of as "normal" -- a set of conditions that are not likely to return for the foreseeable future.

Unfortunately, it is all too easy to come up with grand strategies and leave the infrastructure issues, the processes, people, and systems to implement these strategies, to be "cleaned up" later. Without careful prioritizing, integrated into strategic planning, adapting infrastructure can be very inefficient, with a significant impact on your future operating costs.

Design better processes, people, and systems right alongside your broader business strategies. Dragging your feet now will only leave you with more desperate, and more costly, choices to make later.