Global Uncertainty Has Banks Revisiting Strategy

Rae-Ann Miller vividly remembers the last time the banking industry faced an uncertain environment. It was March 2023 and Miller, then a senior deputy director at the Federal Deposit Insurance Corp., took a call about Silicon Valley Bank.

“I ran upstairs, and the rest was history,” said Miller, who today serves as chief risk officer at IntraFi and was speaking from the stage this week at Bank Director’s Bank C-Suite Summit in Nashville, Tennessee. Silicon Valley Bank famously failed on March 10, 2023, following a two-day, $142 billion deposit run. Two more regional bank failures quickly followed.

There’s a lot more upside for banks three years later. In opening remarks on the state of the industry, Mark Kanaly, a partner at Alston & Bird, pointed to “pristine” credit quality, faster approval times for M&A deals, generally improved valuations and excess capital as positives for banks. With proposed changes to regulatory capital rules, banks should have the opportunity to make acquisitions, invest in organic growth, or reward shareholders through buybacks and dividends.

Unfortunately, an array of events cast a pall over that rosy picture. The two-month conflict in Iran, which has raised the price of gas along with alarms about cybersecurity threats, has created uncertainty. So, too, has the rise of artificial intelligence. Secretary of the Treasury Scott Bessent recently warned big bank CEOs of the technology’s potential to elevate cyber risk; it’s also disrupted the software industry, impacting markets and private credit firms. Credit “hiccups” announced by a handful of private credit firms and banks have drawn scrutiny from regulators and investors, said Kanaly, and investors remain skeptical of bank stocks.

Changes in the operating environment, good or bad, offer an opportunity to revisit the strategic plan. Quarterly earnings can prompt bank leaders to have a conversation about potential changes, but they should avoid managing quarter by quarter, said Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence, speaking as part of a panel discussion on strategic planning.

A sound strategic plan should serve as a road map for bank leaders to achieve long-term goals, and it should be able to weather changes to the environment. “Most of the things you’re going to be executing on — if you have a good plan, you don’t change,” said Mac Thompson, CEO of White Clay. The strategic planning process should start with understanding where the institution truly stands, which bank leaders can do by “learning and listening” to customers and employees, he said. Bank executives should also examine market and bank data to understand who they truly serve. For example, Thompson said he once worked with a bank that viewed itself as a commercial and industrial lender, but its business was more concentrated in commercial real estate. “They didn’t know it, which is terrifying,” he said.

Thompson also advised banks to watch out for budgets that don’t ask too much of their teams. “Budgets somehow turn into almost minimum acceptable performance levels,” Thompson said. “Your budget doesn’t have to be what you’re aspiring to.” He suggested banks come up with two sets of goals — one set that aligns with the budget and another that motivates staff to achieve more.

The best banks have a great deposit culture, said Josh White, shareholder at Elliott Davis Advisory, speaking on the panel with Miller. More institutions have adjusted incentive plans in recent years to encourage deposit growth. In Bank Director’s 2024 Compensation & Talent Survey, almost half of responding executives and board members said their incentive plans for commercial bankers considered deposit growth.

In the face of continued uncertainty, Miller advised bank leaders to monitor uninsured deposits and revisit liquidity plans, including their access to the Federal Reserve’s discount window. “Plan, plan, plan,” she said. “We don’t know where [the next crisis will] come from, but it always seems to manifest in liquidity. The credit risk stuff takes a longer time.”

And a good strategy should be supported by strong execution. When that happens, an institution should emerge stronger. “You want to be the bank that’s going to be able to take advantage of uncertainty when your peers can’t,” said White.