Jeff Judy

Jeff's Thoughts - May 11 , 2011

Opportunity? Or Temptation?

We are clearly seeing signs of improvement in the economy, and you can probably sense new business opportunities just around the corner. The conversation around your bank may be shifting from protecting assets to growing them, from solving problems to booking new customers and new products.

Should you be worried about that?

It is too soon to forget how often our industry has fallen in love with one "opportunity" after another, only to develop a herd mentality in which almost every bank is looking for a piece of the action, for their share of the profits from the latest hot thing. As business improves, opportunity will knock on the door of many a bank. And eventually, opportunity will knock many a bank on its can!

Certainly, it feels good to worry less about survival and think more about growing your business. Without a doubt, you will savor the rewards of all the hard decisions and work you have put in during the recession, positioning your bank to enjoy better times as they develop.

You just have to make sure that your next step forward is not a step over the edge of a cliff.

It is a little like going on a strict diet, no desserts, no treats, for a long time. Then you reach your weight goal and decide you can loosen up a little.

The issue, with that next piece of cheesecake, is whether you are really just loosening up a little, or whether you are lapsing into a feeding frenzy. Will we find you, a few months down the road, managing your sweet tooth as part of your overall diet, or indulging yourself to the point where you are back to your old weight?

Whether you are watching your waistline or watching your portfolio, good intentions do not cut it. You have to have explicit and objective ways to monitor your intake. You have to identify how you will respond when you see signs that your appetite may be getting out of control.

Everyone in banking believes that they will be smarter in the next cycle, that they will somehow resist the temptation to blindly pursue opportunity all the way to ruinous outcomes. But the banks that put appropriate credit risk management proceses in place to manage their responses to expanding opportunity, who go beyond words to actions, are the ones that will remain strong when the next bubble beckons to them.