June 11, 2022 / VOLUME NO. 213

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The Opposite of Blissfully Unaware


There’s been an increasingly common refrain from bank executives as the United States moves into the second half of 2022: Risk and uncertainty are increasing. 


For now, things are good: Credit quality is strong, consumer spending is robust and loan pipelines are healthy. But all that could change. 


The president and chief operating officer of The Goldman Sachs Group, John Waldron, called it “among — if not the most — complex, dynamic environments” he’s seen in his career. And Jamie Dimon, chair and CEO of JPMorgan Chase & Co., changed his economic forecast from “big storm clouds” on the horizon to “a hurricane” in remarks he gave on June 1. While he doesn’t know if the impact will be a “minor one or Superstorm Sandy,” the bank is “bracing” itself and planning to be “very conservative” with its balance sheet.


Bankers are also pulling forward their expectations of when the next recession will come, according to a sentiment survey conducted at the end of May by the investment bank Hovde Group. In the first survey, conducted at the end of March, about 9% of executives expected a recession by the end of 2022 and 26.6% expected a recession by the end of June 2023. Sixty days later, nearly 23% of expect a recession by the end of 2022 and almost 51% expect one by the end of June 2023.


“More than 75% of the [regional and community bank management teams] we surveyed [believe] we will be in a recession in the next 12 months,” wrote lead analyst Brett Rabatin.


“[B]anks face downside risks from inflation or slower-than-expected economic growth,” the Federal Deposit Insurance Corp. wrote in its 2022 Risk Review. Higher inflation could squeeze borrowers and compromise credit quality; it could also increase interest rate risk in bank security portfolios.


Risk is everywhere, and it is rising. This only adds to the urgency surrounding the topics that we’ll discuss at Bank Director’s Bank Audit & Risk Committees Conference, taking place June 13 through 15 at the Marriott Magnificent Mile in Chicago. We’ll explore issues such as the top risks facing banks over the next 18 months, how institutions can take advantage of opportunities while leveraging an environmental, social and governance framework, and how executives can balance loan growth and credit quality. We’ll also look at strategic and operational risk and opportunities for boards. 


In that way, the uncertainty we are experiencing now is really a gift of foresight. Already, there are signs that executives are responding to the darkening outlook. Despite improved credit quality across the industry, provision expenses in the first quarter of 2022 swung more than $19.7 billion year over year, from a negative $14.5 billion during last year’s first quarter to a positive $5.2 billion this quarter, according to the FDIC’s quarterly banking profile. It is impossible to know if, and when, the economy will tip into a recession, but it is possible to prepare for a bad outcome by increasing provisions and allowances. 


“It’s the opposite of ‘blissfully unaware,’” wrote Morgan Housel, a partner at the investment firm The Collaborative Fund, in a May 25 essay. “Uncertainty hasn’t gone up this year; complacency has come down. People are more aware that the future could go [in any direction], that what’s prosperous today can evaporate tomorrow, and that predictions that seemed assured a few months ago can look crazy today. That’s always been the case. But now we’re keenly aware of it.”


Kiah Lau Haslett, managing editor of Bank Director

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Overdraft Fees Are Getting a Much-Needed Overhaul

As banks shift away from overdraft, some of them are rethinking their approach to consumer money management.


“In the case of overdrafts, it felt like consumers could get themselves into the situation unintentionally, and we are not in this work to create hurdles for our customers.”— Nicole Lorch, First Internet Bank


• Lily Harder, freelance writer for Bank Director

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Unlocking Banking as a Service for Business Customers

Banks can deepen customer relationships and grow their business by embedding financial services through banking as a service.

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Crafting a Modern Customer Service Strategy

Leveraging capabilities like digital customer service can enhance the customer and employee experience while diminishing the risk of complacency.

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3 Reasons to Add SBA Lending

Financing the nation’s newest businesses is a potentially huge opportunity for community banks.

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4 Key Risks Facing Banks

Moss Adams Partner Craig Sanders shares the top risks facing banks today, based on Bank Director’s 2022 Risk Survey.

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