10 REPORTS EVERY BANK SHOULD RUN NOW BY PAULA S. KING, CPA, ABRIGO Banking Management Reports for Today Financial institution executives are reporting increased or significant concerns about interest rates, credit risk and liquidity — worries that only add to the number of figurative plates they are spinning. How can banks quickly spot warning signs so they can act during volatile economic, industry and institutional conditions? Data-driven decisions for managing financial institution risk while driving growth and increasing efficiency are especially important given the recent failures of Silicon Valley Bank, First Republic Bank, and Signature Bank of New York. With headlines like “banking crisis” and “bank runs,” customers, employees and other stakeholders are looking for any sign that another bank is in trouble — even if the institution is not facing the unique circumstances leading to those banks’ collapses. Naturally, all financial institutions come under increased regulatory scrutiny after such newsworthy events as those, too. In addition, even before the recent banking troubles, regulators have emphasized the financial institution’s responsibility to provide leaders with information on key areas of planning, operations and risk management. An OCC Reference Guide to Board Reports and Information, for example, says that “directors should look at individual, peer and industry performance measures as well as the trend and interrelationships among capital, asset quality, earnings, liquidity, sensitivity to market risk and balance-sheet changes.” Financial Institution Information for Assessing, Managing Risk Where to start? Below are 10 reports banks should run and review to assess capital, growth and liquidity. The reports for banking management are grouped into three major areas of focus, while all are connected. Reports for Assessing Bank Capital Capital ratios reports assess the sufficiency of an institution’s ability to absorb losses. Regulators review them to assess safety and soundness. Shareholders care about them from an earnings and return viewpoint since increased capital needs can affect strategic planning, growth plans, dividends and, ultimately, stock price. A report that allows a financial institution to identify warning signs that it is approaching minimum regulatory requirements for capital compares the institution’s equity capital to assets and its total leverage ratio (core capital) with the minimum regulatory requirement (e.g., the Community Bank Leverage Ratio (CBLR) and the minimum Tier 1 leverage ratio). The capital ratios report helps ensure the institution maintains capital commensurate with the level and nature of risks to which it is exposed. Capital is impacted by growth and liquidity, so it is essential to look at these graphs holistically. In addition, keep in mind the necessity to drill down into these more general graphs to gain better insight into underlying issues. Continued on page 14 12 In Touch
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