Community bankers have a lot of authority. People listen to them. What are some nonobvious things banks should be doing to prepare for a recession? First, determine which borrowers to work with. Community bankers have a lot of authority. People listen to them. If they tell a borrower to dial things back and ensure they have enough cash to pay their loans on time, the borrower will listen in most cases. Bankers know better than anyone how to manage through these periods. Second, avoid any undue conflict with regulators. When regulators ask questions, banks should think hard about their answers. They should be honest, of course, but thoughtful. Regulators too often aren’t clear in written communications, and that lack of clarity can lead bankers to interpret things in an overly rosy manner. But when regulators write things, they don’t intend to be rosy. Any time there’s ambiguity, banks should clarify what the regulator wants. Third, clean up any outstanding MRAs and MRIAs. Letting them drag on won’t make them go away, and as the pile gets bigger, it becomes harder to deal with — especially during down cycles, when bankers have more to do. It could also make the regulators come out with public orders and cease-and-desist and all the things that make life more difficult. Crypto markets are in turmoil. Democrats say the instability supports why U.S. regulators have been skeptical of the relationship between banking and crypto. Republicans say that if regulators were less skeptical and offered guidance on relationships between banks and crypto firms, the crypto markets would have more oversight and be safer. What’s your take? Crypto isn’t going away. The two big questions are: 1) how big is it going to be? and 2) what are the functionalities that will genuinely be beneficial to end-use consumers and financial institutions? Crypto may be faster for certain types of transfers, but maybe traditional money-transfer mechanisms used by the Fed and others can adapt to compete. Regulators should begin crafting rules for crypto firms, but keeping banks out of crypto altogether is a bad idea. Banks should be able to experiment with it. Otherwise, nonbank players will end up dominating the market. We ought to watch the space closely and be flexible, and we need sensible standards that apply to banks and nonbanks alike. n Scan the QR code to listen to the full conversation. www.intrafi.com/press-insights/podcasts/ Issue 1. 2023 17
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