38 JULY / AUGUST 2020 DIRECTORS / SENIOR MANAGEMENT It all happened so fast! One day, we had record low unemployment and strong measures of banking industry health. Then in a flash, large segments of the economy were shut down by the scary presence of an invisible enemy that upended the way we work, learn and play. In addition to the health and safety concerns of the pandemic, there are widespread concerns about unemployment and the ability of businesses to survive. The nation’s bankers, as always, have been on the frontlines in helping to keep our economy alive. Many industry observers thought that the Great Recession of 2008-09 was a once-in-a-generation phenomenon in terms of severity. Unfortunately, bank leaders today need to dust off the playbook and examine what banks did right and wrong in navigating that crisis. Of course, there are significant differences between the Great Recession and the COVID-19 crash. The recession was triggered by a variety of factors that created a highly leveraged mortgage finance system. Ill-conceived derivative products and securitizations operated under the widely held view that housing would always hold its value. With so many complex issues leading to the housing bubble and the Great Recession, many incorrectly blamed banks. The image of banking was further tarnished by the misperception of the Troubled Asset Relief Program as a government “bailout,” though TARP generated a positive return for the Treasury. Today’s situation is different. Banks certainly did not cause the coronavirus problems, and hopefully people realize that most banks are working to help businesses Lessons Learned From the Great Recession And how they apply today and households stay afloat economically. Time will tell whether the economy will bounce back relatively quickly. In the meantime, challenges abound affecting stock prices, loan losses, earnings and capital. Throughout these challenges, bank leaders will have the opportunity to shine, and lessons learned from the Great Recession may help. Reflecting on our experience of working with many outstanding banks and bankers over the years, we offer the following takeaways from observing successful clients as they managed through the Great Recession and its aftermath: • Maintain focus on all stakeholders. The best bank leaders instill a culture of serving several constituencies – employees, customers, shareholders and regulators – recognizing that the stakeholders are interconnected. A bank that takes good care of its employees will most likely find that its employees provide excellent service to its customers. Additionally, regular and open communication with regulators is necessary to help keep them as allies rather than adversaries. This awareness, along with prudent risk management, may position a bank to deliver acceptable risk-adjusted returns to shareholders. For banks to emerge stronger from a difficult period, it is critical to keep sights on this broader mission. • Take your medicine. If you have loans to downgrade or losses to recognize, it may be prudent to do so sooner rather than later. In the early stages of a downturn, it is impossible to know exactly which sectors of the economy will bounce back quickly, which will suffer the longest and how deep chargeoffs will ultimately go. Whether you are in a CECL Charlie Crowley Managing Director Boenning & Scattergood Inc. charlesc@boenninginc.com Chris Chapman Managing Director Boenning & Scattergood Inc. cchapman@boenninginc.com Boenning & Scattergood Inc. is an associate member of the Indiana Bankers Association. Chad Hull Managing Director Boenning & Scattergood Inc. chull@boenninginc.com
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