V or W? you choose

RMA Journal, The, May, 2002 by Maurice H. Hartigan, II

Among the interesting phenomena of economic cycles is the lack of broad consensus as to where we are at any given point. Since hindsight is always 20-20, perhaps we should replace "forecasting" once and for all with "rearviewing." Neither, of course, takes the place of having the knowledge and skills to feel better prepared--whatever the outcome.

The economic fallout from our troubled past months appears to have dissipated, and certain indexes--joblessness and consumer charge-offs, for two--are unlikely to reach the levels predicted early on. Chairman Greenspan's more optimistic view has Fed watchers anticipating an increase in the telltale federal funds rate toward midyear. A gradual mix of a U and a V recovery would be optimal.

Meanwhile, the wary point to a continuing weak global economy, the ongoing threat of terrorism, the tepid rate of capital investment by U.S. businesses, and the debt-heavy consumer. They fear another dip-- or W--before we clearly align the factors of production that will ensure a broad-based recovery.

These are the times that try lenders' skills and patience. Fortunately, our banking system has weathered the past 18 months quite well. Yes, problems abound in higher classified assets, higher reserves, and higher charge-offs. But the system is strong, and, in the main, institutions are adequately capitalized. Also, lest we forget, we're a service industry in business to provide needed products to our clients. If there is one thing some of the lessons of the recent past tell us, it is that our business decisions must be based on thoughtful analysis of timely and clearly delivered financial and business information.

At RMA we've been carefully observing some of the recent market trends. Problem loans that banks report increasingly have the added dimension of liquidity risk and market risk accompanying the historical credit risk. This is not a totally new phenomenon. But risks that previously were considered unrelated are quickly converging, and there is less time between an initial identification and a serious problem. These two factors underscore the fragility of the capital markets and the dependency on bank credit facilities during periods of difficulty.

To respond quickly but appropriately to opportunities within this environment, RMA knows you need solid information--delivered fast and conveniently. Our online presence has advanced considerably in response to your interests and needs. For some time, you've been able to order and download our products and register for workshops, seminars, round tables, and conferences. But now there's more.

RMA has moved the core of its information and training knowledge online. Complementing eMentor[SM], our new text-based knowledge base being used by more and more banks (see page 77), is the launch last month of the Mentor Online training series. Ranging from "Cash Flow" to "Ratio Trend Analysis," Mentor Online courses offer audio and video clips as well as a scored test question database. A bank's training administrator can view a summary of the reports by specific departments or by a given time frame. If desired, the administrator can even view those questions answered incorrectly. Learn more about Mentor Online on page 50. Also available is Diagnostic Assessment Online--created by bankers for bankers, the Diagnostic is the bedrock of RMA's Professional Development courseware.

As we continue to use the latest technology to support you, we also are in the midst of a study designed once again to bring you the best practices of our member institutions. With the convergence of risks and the shortened period of opportunity to resolve problems, enterprise-wide risk management is no longer a luxury. It's key to managing risks and to allocating precious capital appropriately to cover those risks. In the coming months, we'll bring you more news of this important work.