Jeff Judy

Jeff's Thoughts - April 13 , 2011

Ice Bubbles, Financial Bubbles

There's something in the air these days, in the banking industry, and it may be good for you. Although we enjoy doing a good bit of grumbling about the economy and regulatory scrutiny and media coverage and public perception, many financial institutions have altered their practices for the better over the last couple of years.

Most banks are lending more prudently, monitoring more closely, and running more leanly. Communication is more abundant, staffing models are tighter, risk awareness is higher. Frankly, these days many banks are operating more like we wish our business customers would operate all of the time.

But the winds of change are starting to blow, even if they are only faint breezes so far. The economy is improving, the businesses we work with are getting stronger, and pretty soon bank leaders will be talking less about "safety" and "soundness" and more about "opportunity" and "growth."

In another year or two, we will be working in a more rarified atmosphere, and probably getting a little lightheaded. And when we get there, wouldn't it be good to take a whiff or two of the air we are breathing now, to relive, a little bit, the environment and strategies that are currently strengthening practices and improving outcomes?

You cannot stand still, of course, anymore than you could take a really deep breath now and hold it for the next couple of years.

In Greenland, scientists bore deep into the ice, and the "cores" they bring up contain air bubbles that have trapped bits of the atmosphere from hundreds or even thousands of years ago. And in the best-run banks, you can see their history in their current practices. Current approaches to current challenges and opportunities retain some of the "atmosphere" of lessons learned, usually the hard way, from past experience.

You need to lay down your own "core samples" now. You need to find some way to bottle the air, so that at a future time you can open the jar and give a few whiffs to staff who are becoming too exuberant about a particular "opportunity," or too lax about well-founded practices.

A tight culture and explicit communication strategies are the core samples of the bank, the secrets to retaining the sweetest-smelling parts of the current banking environment. How will you detect weakening of the culture? How will you respond to the subtle rise in requests for exceptions and looser practices as the economy improves?

If you do not determine the answers to those questions in the very near future, your more distant future is likely to include a bubble or two. And the air in those bubbles will not be so good for you