The New Normal: Unknown Risks Take Center Stage

John Janclaes  – President, NYMBUS CUSO; AKUVO Board Member 

April 23, 2021 

One of the most challenging responsibilities that executives of financial institutions face is that of managing risk in a prudent but profitable way.  The year 2020 has shown us that preparing for familiar risks, namely cyclical events such as recessions, is necessary but not sufficient.  Going forward, it is likely that the “new normal” will be riddled with unknown risks that the industry and humanity has never faced before.

This past year taught us that a pandemic, civil unrest, severe weather or even a seemingly innocuous event across the globe can disrupt your ability to provide services. These same risks also threaten the financial health of your market. The new normal also includes business and household cash flows can fluctuate wildly between recessions due to shifting business and consumer needs, the bumpy gig economy and government stimulus.

Some financial institutions rose to the occasion in 2020 and evolved by proactively reducing costs and increasing efficiencies. These institutions were able to speed up their learning through data gathering and analysis, which in turn allowed them to see their blind spots and helped accurately steer an effective pivot.

Other financial institutions lagged and may never recover.

The difference? On the whole, financial institutions still operate under risk management assumptions developed from past behaviors to assess danger and maintain safety and soundness. These playbooks are solidly built on historical data; they provide extremely useful information from which actions can reasonably be taken.

However, the new normal includes a confluence of unprecedented events and a compression of time between cycles. That means the risk management playbooks of the past may not be effective going forward; at least, not without adjustment for these worrisome unknowns.

Preparedness for the new normal will require organizations to quickly assess the need for data, and to access and analyze the information available. Processes for finding and mining relevant data will need to be examined for modern application and, where processes do not exist, they will need to be constructed. Where appropriate, or where information is unavailable, inside data with need to be supplemented with outside data. A proactive readiness program should include:

  • A process for organizing and analyzing data;

  • Origination practices that can be adjusted based on data;

  • Collection practices that are efficient and scalable;

  • Differentiation of risks and integration into a portfolio approach;

  • A/B testing to support decision making of one course of action versus another;

  • Processes for faster learning that can keep up with the new risk environment;

  • Processes for assessing the skillsets, technologies and partnerships that will be required to respond to new threats and opportunities.

Fortunately, resources that were previously nonexistent or out of reach are now accessible to most institutions through financial technology firms. The tools and expertise needed to stay relevant, be profitable and expand capabilities are reachable and should be made part of each financial institution’s plan to mitigate risk and gain competitive advantages.

The new normal will continue to put financial institutions under constant attack, and a feeling of apprehension seems unavoidable. On the bright side, successful institutions will continue to cleverly figure ways to meet apprehension with anticipation.  Where there is risk, there is always opportunity.  In the end, there is some comfort in knowing that financial technology firms are the modern-day cavalry coming to save the day. Or at least arm you with the tools to seize the day and emerge victorious.

About the Author

John Janclaes currently serves as an AKUVO Board Member, providing invaluable guidance based on his extensive credit union industry experience.  John’s current primary role is serving as President of the newly formed NYMBUS CUSO, an organization that empowers its credit union owners and partners to quickly establish niche digital banking. From 2004 to 2021, he was President & CEO for Partners Federal Credit Union, which serves employees of The Walt Disney Company and their families. John is also the founder of The CEO Corner, an online forum to help business leaders and their organizations.