An outsized crisis requires bold action. The banking industry responded in kind when the economy spiraled as a result of the Covid-19 pandemic.

Financial institutions across the country assisted small businesses by issuing Paycheck Protection Program loans. Banks also almost universally modified loans to help borrowers weather the storm, according to Bank Director’s 2021 Risk Survey, sponsored by Moss Adams LLP. At the peak of the downturn, 43% of the directors, CEOs, chief risk officers and other senior executives responding to the survey say their bank modified more than 10% of the loans in their portfolio.

Conducted on the heels of a tumultuous 2020 – with the pandemic, social strife and political change continuing into January – the survey reveals high levels of anxiety across the risk spectrum. In particular, respondents indicate greater unease regarding cybersecurity (92%) and credit (89%), as well as strategic (62%) and operational (52%) risks.

Almost half of respondents indicate that some or most of the loan modifications extended into the fourth quarter 2020, and two-thirds reveal concerns about concentrations in their loan portfolio, with most pointing to commercial real estate (43%) and/or the hospitality industry (31%).

Forty-three percent indicate that their bank tightened underwriting standards during the downturn. Looking ahead, many are unsure whether they’ll ease their standards to lend to business customers in 2021 and 2022. The challenges to bankers have been deep during the past year.

As the CEO of a small, southeastern community bank put it: “What doesn’t kill you makes you stronger.”

Despite this uncertainty, bankers express some optimism. More than three-quarters believe that supporting their communities during the pandemic has positively affected their bank’s reputation. Eighty-seven percent expect fewer than 10% of their bank’s business customers to fail. And 84% will improve their bank’s business continuity plan due to what they’ve experienced.

Key Findings

More Robust Stress Testing
More than 80% say their bank conducts an annual stress test. Of these, 60% have expanded the quantity and/or depth of economic scenarios examined in response to the Covid-19 pandemic.

Cybersecurity Gaps
Sixty-three percent say their institution increased its oversight of cybersecurity and data privacy in 2020. Most say the bank needs to improve its cybersecurity program by training staff (68%) and implementing technology to better detect or deter threats and intrusions (65%).

Pandemic Plans Adjusted
Respondents identify several areas where they’ll enhance their business continuity plan as a result of the pandemic. The majority point to formalizing remote work procedures and policies (77%), educating and training employees (56%) and/or providing the right tools to staff (55%). Roughly half say that fewer than a quarter of employees will work remotely when the pandemic abates; 25% say that no employees will work remotely.

Banking Marijuana
Forty-one percent of respondents represent a bank headquartered where marijuana use is at least partly legal. Overall, one-third are unsure if their bank would be willing to serve marijuana businesses. Just 7% serve these businesses; 34% have discussed banking this industry but don’t work with these companies yet.

Climate Change Still Not a Hot Topic
Just 14% say their board discusses the risks posed by climate change at least annually; this is up slightly from 11% in last year’s survey. Fewer than 10% say an executive reports to the board about the risks and opportunities that climate change presents to the institution.

To view the full results of the survey, click here.

WRITTEN BY

Emily McCormick

Vice President of Editorial & Research

Emily McCormick is Vice President of Editorial & Research for Bank Director. Emily oversees research projects, from in-depth reports to Bank Director’s annual surveys on M&A, risk, compensation, governance and technology. She also manages content for the Bank Services Program. In addition to regularly speaking and moderating discussions at Bank Director’s in-person and virtual events, Emily regularly writes and edits for Bank Director magazine and BankDirector.com. She started her career in the circulation department at the Knoxville News-Sentinel, and graduated summa cum laude from The University of Tennessee with a bachelor’s degree in Spanish and International Business.