Bankers are now entering the phase of the pandemic where things will start to intensify. Until now the deferments and the delays in recognizing troubled and defaulted credits (as mandated by the CARES Act) have allowed us to focus on the customer. The social safety net (as enacted by Congress) has allowed many, but not all, people to keep up with their expenses. The myriad of actions taken by the government in March have pushed out the day of reckoning (financially, at least) into the late fall or early next year.
At the same time COVID 19 continues to act as a pandemic event does, with sickness and death continuing and quarantining and wearing masks common throughout the country and it does not look like this will change anytime soon. By now we all know people who have been infected (my 19 year old niece, for example) and have seen on the news the effect throughout the country. As much of an optimist as I am, it looks like we are not on the recovery side of the equation.
Long Term Crises are the Most Difficult to Manage Through
Long term crisis management is a difficult thing to do. Sometimes executives and board members who excel on the sales side have difficulty transitioning to the defensive side as requires more focus on asset preservation and less on customer retention and growth. It is tempting to give up or become a “Zombie” bank, just operating until sale or merger. During the last recession around 500 banks failed and another 1,100 merged, reducing the number of banks by 22% from 2006 to 2013.
As consultants we worked with several of the banks as they were failing or looking for merger partners. Most took several years to go through the failure/sale process. We noted several behaviors during this period, including anger, denial and withdrawal (one executive I knew of moved their office to a different building and refused to communicate with others in the bank. This went on for several months until they were removed by the board).
Advice for the Executive Team
This advice is aimed at addressing the psychology components. I imagine you are already getting enough advice on financial management from outside advisors and the regulators.
- The executive group must operate as a focused team throughout the pandemic, which may go on for another year or more. If you remember back to the great recession, that went on for several years and required management to be focused on the problems at hand.
- Executives also need to address their own mental state throughout the pandemic. Executives are exposed to the same stressors as everyone else and these will spill over into the workplace if not dealt with. If you are a hands on manager, you will need to learn to manage in a remote environment where access to people will need to be scheduled and through telecommunication.
- Board members are also undergoing stress and will go through the same emotional stress as everyone else. We have witnessed meaningless conflicts at the board level as a result of this, which does not help the bank.
- The practice of open and transparent communication is very important in order to address rumors, conspiracy theories, health of the bank, etc… There is no good measure of the appropriate amount of communication so do more, not less.
- Reducing uncertainty has a positive impact on the retention of employees. People view uncertainty as a risk and will leave if they perceive the bank is in worse shape than it actually is. People prefer bad certainty over good uncertainty.
- Protecting the assets (and their value) of the bank is paramount. We saw several financial institutions during the recession move too slowly in setting up a special assets function. A lender will work very hard to protect the customer, helping them to preserve their business. Special assets is charged with protecting the value of the asset that secures the credit. This is a difference we have witnessed and can be the difference between failure and survival.
- The ability to rapidly analyze and reassess the economic changes will provide scenarios, and some degree of certainty, as to how the bank will perform in the short term.
We are moving into a more stressful period as COVID 19 continues and government assistance is withdrawn. Survival is based not only on how you manage the financial position of the Bank but also on effectively understanding the psychological challenges you are facing. To that end, I again recommend reading, The Psychology of Pandemics (2019), by Steven Taylor. It is 111 pages of good pandemic information.
Winning…or the Opposite
Finally, I leave you with a quote from Tommy LaSorda, a longtime Baseball manager. When asked about how to be a winner, he responded, “No matter how good you are, you‘re going to lose one-third of your games. No matter how bad you are you‘re going to win one-third of your games. It’s the other third that makes the difference.” The pandemic is a long term event that has wreaked havoc on people and economies throughout the world. How the executive team acts and reacts will determine the survival of the institution.