Close
Close

Proactive banks can build pandemic resilience

How banks are successfully navigating COVID-19 disruption

RFP
Man laying bricksEvolving changes and government mandates mean that banks must do more than build continuity for today. After stabilizing operations, banks need to keep adapting, monitoring, measuring and planning based on data that rapidly evolves. This is a new way of working, and it will be critical to safeguard the financial health and viability of the bank and its employees.

To drive adaptation, banks need to consider the potential impact of risks in six areas.

Six risk impact areasBanks might have resiliency plans that include pandemic scenarios. But, even if banks successfully pivot their operating models for employee safety, distributed work arrangements and revised customer services, they need to plan for a “normal state” that will be different in the future.

To be proactive, banks need a plan that considers six risk areas, addresses immediate and anticipated changes, then identifies the actions to take.

FIS banking COVID-19 chart

Liquidity and cash flow managementIt is critical to evaluate your current funding ratio and asset positioning in light of recent and ongoing disruptions. Make sure the frequency of cash forecasting and liquidity management modeling increases to improve long-term funding viability and minimize unavoidable profit-and-loss impacts.


Building apartment purple icon
Addressing immediate challenges
  • Analyze deposit and withdrawal trends and ensure cash sufficiency in ATM and branch networks.
  • Monitor liability balances and look for material trends that can impact liquidity and non-functional requirement models.
  • Review investment portfolio valuations and debt/deposit funding ratios.
  • Rationalize current expenditure plans and identify unplanned expenditures, such as increased IT spending due to work-from-home arrangements.

Building apartment purple icon
Anticipate changes
  • Reforecast liquidity models under a range of scenarios, considering recent regulatory funding actions such as repo availability and bond purchasing.
  • Develop stress scenarios for forecasting models to evaluate potential liquidity; consider cash flow shortages due to loan modification programs in the CARES Act.
  • Consider unexpected cost increases in connection with shifts in portfolio quality, such as an increase in default servicing or workout staffing.

Building apartment purple icon
Determine actionable items
  • Adjust cash flow forecast models for the impact of loan modification programs and expected deferment in payments.
  • Develop a cost management plan for applications, vendors, and organization through remainder of calendar year.
  • Develop a performance management and improvement plan encompassing people, process, technology, governance, change and adoption.

Supply and customer demand Banks need to minimize disruption across their customers, vendors and capital position while navigating crisis-driven changes. Show customers that you care by taking proactive steps that demonstrate you understand their expectations and are prepared to deliver.

Building apartment purple icon
Addressing immediate challenges
  • Key vendors may be facing going-concern challenges as they deal with significant loss of revenue from key client accounts. Service vendors often have a customer concentration risk.
  • Customer panic can be made worse by poor communication.
  • Technology resources are strained by the sudden and massive shift of traditional retail customers to digital platforms, many for the first time.

Building apartment purple icon
Anticipate changes
  • Anticipate customers rapidly converting equities to cash and the possible risk of mass withdrawals.
  • Anticipate the demand for corporate-level services decreases as HQ offices close.
  • Anticipate mortgage, business and personal loan customers may have trouble making payments if their income is directly or indirectly impacted by the pandemic.

Building apartment purple icon
Determine actionable items
  • Assess the “going concern” business resiliency of key partners, such as network outsourcing partners.
  • Take the opportunity to improve gateway processes for on-boarding new vendors and projects.
  • Technology networks should prioritize digital channel customers and mobile employees. Bandwidth-intensive programs and applications that are not business-critical should be deprioritized or taken off-line.
  • Communicate with your customers thoughtfully and based on the facts of real events.

Regulatory factors Focus on capital adequacy and executing models considering recent changes in the economic environment. While there might be a delay in regulatory examinations, maintaining communication with regulators will be key – especially for current commitments or deliverables.

Building apartment purple icon
Addressing immediate challenges
  • Analyze all existing regulatory commitments and scheduled deliverables; this covers all mandated reporting requirements and commentaries.
  • Review all regulatory commitments based on findings or observations and evaluate whether there has been an impact.

Building apartment purple icon
Anticipate changes
  • Ensure that all controls are robust, tested and measured, and that this information is collated and available for future review. Regulators will expect to see evidence of over management, governance, and documentation.
  • Roadmap enterprise risk management going forward. Regulators will want to know what you have learned, what worked, what did not and what needs to be changed or enhanced. This will be true across the end-to-end business and must consider customers and controls.

Building apartment purple icon
Determine actionable items
  • Perform a review of all open regulatory issues and observations and re-define the roadmap for their delivery, focusing on imperatives.
  • Perform a review of critical controls and operations now that the operating model has changed.
  • Identify volume or event triggers under this new modus operandi to provide enterprise risk management actions.

People, labor and business operations Banks must prioritize the need for employee safety while addressing potential disruption to service delivery. Make sure to recognize and respond to unintended control weaknesses as a result of dislocation and relocation.

Building apartment purple icon
Addressing immediate challenges
  • Segment people by process affiliation to maximize and ensure employee safety across functions as well as servicing integrity and infrastructure control.

Building apartment purple icon
Anticipate changes
  • Current modifications to the business continuity plan in the face of a pandemic must have a strong degree of optionality – do not make choices that pigeon-hole against future dynamic changes.
  • Digital collaboration will now be a long-term reality or a new normal for significant portions of day-to-day business operations.
  • Transition from a continuity mindset to a new operating model mindset.
    • Change management
    • Tools and training
    • Communications
    • Security
    • Performance management

Building apartment purple icon
Determine actionable items
  • Focus on employee and customer health and safety.
  • Launch remote working and a branch access or on-site plan.
  • Shift skillsets to manage flow, such as mortgage teams reallocated to refinancing or loan operations moving into workouts.

Portfolio management Banks must enhance their focus on credit and interest rate risk management to build portfolio and model sustainability and resiliency. Remember, your pipeline is your future; it is just as important as your current portfolio.

Building apartment purple icon
Addressing immediate challenges
  • Perform a review of the existing investment portfolio valuation and asset positioning against funding needs.
  • Review existing pipeline and deal status to consider the future portfolio makeup. Develop portfolio projection with the associated future funding needs.
  • Perform a model review to consider the documentation, limitations and original model purpose, usage, and boundaries. Are they still applicable?

Building apartment purple icon
Anticipate changes
  • Confirm systems functionality for tracking temporary loan modifications and deferments. Ensure that temporary adjustments do not translate into increases in delinquencies.
  • Consider the impact of the CARES Act on your models.
  • Consider the impact of the CARES Act on your credit risk models, including validity of baseline inputs and assumptions.

Building apartment purple icon
Determine actionable items
  • Prepare strategies to address default increases and foreclosure prohibition. Upskill or cross-train loan operations.
  • Enact a plan to retest and revalidate loss forecasting models, such as CECL or ALLL.
  • Ensure that all model documentation is available, current and catalogued, to SR 11-7 standards if possible.

Tax strategies Tax planning in today's environment will add liquidity to your business. The CARES Act and various forms of administrative relief will offer tax planning opportunities not seen since tax reform.

Building apartment purple icon
Addressing immediate challenges Add liquidity through tax planning by:

  • Deferring federal, state and non-U.S. filings and payments based on federal and state announcements.
  • Understanding and modeling the impacts of the federal and state legislation and relief for accounting methods, net operating losses and credits.

Building apartment purple icon
Anticipate changes
  • Keep abreast of state deferrals of return due dates and payment dates.
  • Keep abreast of possible future stimulus packages and administrative relief provisions.

Building apartment purple icon
Determine actionable items
  • Model tax planning items for impacts on 2019 tax filings.
  • Understand the tax implications of employees working from home.
  • Consider filing Form 4466 (quick refund claim) to receive previously paid estimated tax payments.
  • Model accounting method changes and international operations cash needs for impact on current and prior year returns.

Rapid solutions for banks and the CARES stimulus program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides $350B in forgivable loans through the Small Business Administration Paycheck Protection Program (SBA PPP). With a rush to participate, the challenge for some banks will be the ability to quickly scale and support the volume and unique requirements of PPP in a timely manner.  

For help and full-service support across the SBA PPP loan program, contact us.
The proactive response The COVID-19 health emergency will have significant negative impacts and, while the CARES Act might ease some of the pain, it will also create new work for banks. It is important to ensure that your proactive planning incorporates all known factors and adapts to new information quickly.

Pandemic resiliency starts with responding to current and evolving challenges, followed by a commitment to proactively identify and mitigate additional risk factors that can disrupt business.

Contact:
Graham TasmanGraham Tasman
Principal, National Banking Sector Leader
T +1 215 376 6080