Jeff Judy

Jeff's Thoughts - April 23 , 2014

Everybody Talks About It, But ...


What is it that everybody talks about, yet nobody does anything about?

If you answered "the weather", you've recognized this old saying.

But if you answered, "the next bubble in banking", you'd be right, too!

It is an understatement to say that banking is a cyclical industry. We've just been through the worst of downturns, and now things are looking a little brighter. And as surely as our current April showers will bring May flowers, better conditions will soon give way to lax risk management.

Indeed, in conversations with bankers at my training events and at the recent ICBA convention, this was a frequent topic of concern. Many in the industry feel that we're already starting to see some of that looseness afflict thinking and behavior in banking. Indeed, in a recent radio interview, former FDIC chair Sheila Bair opined that some of the "silliness", as she called it, was returning around commercial real estate.

Maybe that's the next bubble, maybe we'll be creative and find something new to mess up. But as the economy continues to improve, "soundness" will echo ever more faintly in many financial institutions, and the sales culture will dominate ... until that next bubble pops, of course.

Now you may be reading this and thinking, "What am I supposed to do about this?" And you're right to some extent. There's only so much an individual in a bank can do to influence policy, and there is only so much community banks can do, when compared to the impact the big banks have on the economy.

Still, there are a couple of things everyone should consider, when contemplating the next bubble.

The first is to take some version of the Hippocratic oath, famously administered to doctors. Hippocrates started with the admonition, "First, do no harm." You may not be able to fend off the next bubble by yourself, but you do not have to contribute to it. It is easy to say, "everybody's going that way, I might as well jump in." But that's a choice, not an inevitability.

The second thing, especially for community banks, is to apply lessons learned from this downturn to prepare for the next one. If you assume that the big banks will drag all of us into trouble sooner or later, you still have to figure out how you are going to cope with the consequences.

It would be nice if there were no next bubble. It would be nice if I looked like Brad Pitt.

Given that there will be a bubble sooner or later, make sure you don't have to completely reinvent your responses when the next one bursts. You have just had a great training experience, also called "The Great Recession". You can, and should, anticipate and adapt to that next bubble.