How Banks Can Weather the Storm of Uncertainty With Confidence

In today’s volatile financial environment, financial institutions have become weather vanes, potentially spinning with each economic gust.

High interest rates with an uncertain outlook, evolving regulatory pressures, geopolitical shocks and shifts in customer behavior have created a climate of constant flux. For financial executives, particularly chief financial officers and treasurers, the challenge is no longer simply to plan for the future; it’s to plan amid uncertainty.

Boards are asking tough questions. Will the bank’s liquidity position remain resilient? How would a 150 basis point rate swing affect earnings? Are we adequately prepared for prolonged market stress? These are not hypotheticals. They are scenarios that demand a new kind of forecasting approach, one that moves beyond linear models and deterministic base cases.

Banks have traditionally relied on deterministic forecasts to guide planning and asset/liability committee discussions. A single projected figure for net interest income or capital adequacy is simple, tidy — and often misleading. In an uncertain world, a single number fails to capture the range of possible outcomes that should shape executive decision-making.

This approach would be laughable in other domains. Imagine a meteorologist forecasting a storm: “Tomorrow, the temperature will be exactly 72 degrees.” No probability band. No error margin. No cone of uncertainty. Just a guess.

Weather forecasting has evolved to rely on probabilistic models, called “spaghetti plots,” to map multiple simulated hurricane tracks. The public sees a cone of uncertainty, which conveys not only the most likely path, but also the range of plausible ones. This is precisely the mindset financial institutions must adopt.

Executive teams need to adopt the concept of considering a range of outcomes, based on the variables that can move the needle for net income. They can pair this approach, supported by analysis of key assumptions that may have a material impact on future income and profitability, with other forecasting tools, including a sensitivity analysis or stochastic forecasting process.

Stochastic forecasting is a simulation-based approach that considers thousands of possible paths for interest rates, deposit costs, balance sheet trends and more. This approach to forecasting provides a more holistic view of future financial performance. It creates a distribution of outcomes rather than producing a single projection, highlighting not just expected values but also risks in the tails.

Some executives may resist these more sophisticated methods out of concern that they are too complex to explain to boards or regulators. In practice, however, these methods often produce simpler and more actionable insights. A scenario-based forecast that shows the range of possible earnings under different market regimes can make risks more intuitive, not less.
Moreover, technology has made it easier to run such processes at scale. Cloud-based engines, paired with integrated asset/liability management, financial planning and stress testing platforms, now allow banks to model uncertainty in a way that is repeatable, transparent and board-ready.

This is important now because volatility isn’t going away. If anything, the next 24 months are likely to bring more surprises than the last. Monetary policy remains reactive. Credit cycles are turning. Funding costs are rising. In this environment, boards and executive teams need to see a fuller picture: not just the “most likely” outcome, but the plausible boundaries around it.

This isn’t about adding complexity for its own sake; it’s about making better decisions. When banks make risk-adjusted performance the goal, they must understand the shape of the future — not just the midpoint.

CFOs and treasurers who embrace forward-thinking and modern forecasting tools can position their banks to navigate change more effectively. Reframing financial planning as a range of outcomes, rather than a fixed path, allows them to elevate risk conversations from compliance to strategy. In a fog of uncertainty, seeing further isn’t always about clearer skies. It’s about better instruments. For banks looking ahead, the cone of uncertainty may be the most valuable tool in the toolbox.