Balance

RMA Journal, The, Feb, 2001

By any measure, 2001 is proving to be an interesting year. Alan Greenspan, in his remarks to the conference of America's Community Bankers last December probably articulated our direction best when he said, "the widespread optimism that was apparent in financial markets has given way to some reassessment of risks and opportunities."

Some recent revelations of credit problems have indicated more than just "some reassessment." Most bank analysts have said they feel bad loans will be the biggest concern for financial institutions this year. The Shared National Credit exam, announcements of increasing problem credits, and additional losses and provisions by a number of institutions substantiate much of these feelings.

Greenspan continues his comments to the community bankers: "Though lenders will be viewing new transactions with greater caution than they did a couple of years ago, both bankers and their supervisors should now guard against allowing the pendulum to swing too far the other way by adopting policy stances that cut off credit to borrowers with credible prospects."

He's right. It's all about balance. Don't overreact to credit problems. Take a long view. The really successful risk manager understands the concept of balancing the sometimes conflicting goals of growth and risk-taking.

Daniel Burrus, president of Burrus Research Associates and author of Technotrends and Technotrends 2000, makes an excellent point about balance in decision-making in a new economy--an economy of abundance rather than scarcity. Think in terms of both/and rather than either/or. For instance, we tend to think our customers must make a choice between Internet online banking and use of a branch. The real answer is most customers demand both delivery alternatives and we must be prepared to offer both. Balancing use of technology (high-tech) and face-to-face contact at a branch location (high-touch) is our challenge.

Another tightrope balancing act is capital, loan loss reserves, and earnings. One of my former chief credit officer associates was fond of using the term BENTCO (better numbers through charge-offs). This is a particularly effective tool when you join a bank. Identifying problem credits, going through one horrible clean-up quarter, then realizing consistent recoveries for two or three years make the credit guys look good. It's not, however, the balance that executive management (much less the shareholders) desire. The really conscientious credit risk officer takes a more balanced view evaluating risk on a continuing basis.

Last, but not least, there is the balancing concern with noninterest expense. As Nancy Wentzler, the OCC's deputy comptroller for global banking and financial analysis, warns us, "Don't try to cut costs by cutting loan review." Maintain the important areas that prepare or protect in the long run. It's always ironic that the first area we eliminate when the bottom line begins to suffer is training--the one area that really builds the future of an institution.

RMA has its own balancing-act challenges, taken on to help all of its Associates maintain the balance that will ensure the future of their institutions. We have pledged to deliver a balanced approach in delivering services and products needed by the membership. Large bank or small bank, credit or sales, Web-based or onsite delivery of training and products--we can, and we will, do it all.

William C. Scholl, RMA Chairman