ARTICLE | March 20, 2023 | Authored by RSM US LLP
As the industry continues to assess the impact of these failures, leadership teams at financial institutions can take proactive steps to mitigate risks stemming from the numerous precipitating factors. Various forms of stress-testing, scenario modeling and risk management are key solutions that enable banks to improve their planning and readiness for the future.
Such solutions will be especially crucial given the carousel of money—in the hundreds of billions—moving to and from various financial institutions at a rapid clip since the bank failures. Institutions have already tapped into $11 billion of loans from the Bank Term Funding Program and moved $150 billion into money market funds over the last week and more than $100 billion to the Federal Reserve’s repo facility. Roughly $120 billion moved from financial institutions into money market mutual funds between March 8 and March 15. Much of that was likely from small and medium-sized banks.
Here are critical areas heavily affected by current volatility in the sector and the broader macroeconomic environment, along with key actions leadership teams may consider:
At a higher level, leadership teams should also understand the integral role the risk function plays in analyzing and mitigating the many risks that affect their institution. A formalized enterprise risk assessment that is updated on a regular basis can assist an institution in identifying areas of increasing or outsize risk in a timely fashion. This should trigger deployment of a mitigation strategy to prevent massive shocks and potential failure that could come to fruition if not addressed.
Furthermore, the board and relevant board-level committees should zero in on the issues detailed above to ensure they are not only providing proper governance to management but effectively challenging the institution’s risk management processes when needed.
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This article was written by Nicholas Hahn, Andrew Broucek, Angela Kramer, Brandon Koeser and originally appeared on Mar 20, 2023.
2022 RSM US LLP. All rights reserved.
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