Examining Current Banking Failures & How to Overcome Them

Examining Current Banking Failures & How to Overcome Them

We are facing unprecedented times in the banking industry — and fears only continue to mount. The failure seen at SVB that resulted in more than $42 billion (USD) in funds pulled from the bank in a single day can be equated to a “shot heard ‘round the world,” with many customers and banking professionals alike shocked by the turn of events.

While it is simply human nature to feel afraid in times of uncertainty, this fear can sometimes guide us toward adopting closed-off business attitudes.

Yet, the very sensation of fear is a key indicator that change is needed.

Recently, I hosted a virtual event on The Current Banking Failures and How You Can Win in Today’s Climate where I discussed this fear, what it means for the banking industry, and how to overcome it.

Join me today as I dive into the key topics covered in this event and how your bank can effectively drive growth and stability despite the current banking environment we face.

Fear in the Context of Banking: Are Large Banks Truly “Too Big to Fail?”

When we talk about the fear running rampant in the banking industry currently, we are mainly referring to the fear felt by customers and mid-to-small-size banks.

From the customer’s standpoint, the SVB situation perfectly encapsulates where the fear stems from — an unrelenting anxiety over whether the customer’s money is protected. I’ll talk more on customer fear in a moment, but this is an important consideration to keep in mind throughout this discussion.

As for fear coming from the banks, any bank that is not a large corporate entity could be feeling unease at best and dread at worst. For mid-market, regional, and community banks, the current banking failure environment that has customers running for their withdrawals has put these banks on the defensive.

Meanwhile, large banks are experiencing the opposite effect.

For many decades, large banks have maintained an attitude of being “too big to fail,” meaning that these institutions simply have too many customers and too much liquidity to ever face the bank run failures such as what we just witnessed with SVB.

However, even as the main beneficiaries of the current banking failure sentiments, large banks still have their own fears to concern themselves with — mainly, the massive KYC responsibility that comes with onboarding the masses of new customers coming in.

A recent NewYork Post article reveals that JPMorgan bankers had to pull multiple all-nighters just to continue opening new accounts for the customers flowing in from the SVB crisis. One source even likened the scene to a “war room situation,” with KYC processes being expedited from a multi-day or multi-week process to just two days in some cases.

So, when we ask if large banks are too big to fail, the answer is no — these banks may not face the same challenges as their smaller counterparts but they do have their own hurdles to overcome.

What Does the Banking Failure Environment Mean for Regional Banks?

For regional banks who are facing uncertainty in today’s banking failure environment, knowing what to expect and what current sentiments mean for business is key.

The same goes for mid-market banks, as well as smaller community banks and credit unions — a clear oversight of current conditions and the biggest inhibitors to growth and revenue is needed.

Let’s quickly cover three vital considerations for these banks when dealing with a failure environment:

3 Steps for Successfully Navigating Today’s Banking Environment

To overcome the fear seen throughout the banking industry currently, banks need to not only set clear goals but also analyze how those goals need to differ according to various sectors.

With the right approach, it is entirely possible for smaller banks currently on the defensive to rediscover their competitive edge and re-establish their authority within local communities.

Here are three vital steps for accomplishing your goals as a smaller institution:

1. Enhance Knowledge Sharing:

It is becoming increasingly clear that communication is a crucial pillar of success in the industry today. Knowledge sharing is the practice of adopting highly transparent communication strategies both internally with your business team and externally with customers. Right now, customers may be fearful over the safety of their funds. After all, many of SVB’s customers were met with not only the anxiety of a bank run but also the fear afterward that potentially only $250K of their deposits could be guaranteed, with customers with deposits greater than this value having to contact the FDIC directly for more information on their lost funds. From the above scenario alone, it’s easy to imagine how disarming this whole experience can be for customers, putting them on the defensive as well when it comes to banking interactions. Luckily, regional banks have a greater communication advantage thanks to being more tightly knit within the local and surrounding communities. With many of the necessary community relationships already in place, what regional banks need to focus on most is how to communicate more effectively across digital channels to provide customers with instant information and peace of mind.

2. Focus on Your Strengths as an Institution:

The cost of innovation is steep — with one major organization even spending an astounding $10 billion on technology in the last year. Yet, despite this lofty peak of tech investments among larger organizations, smaller and more regionally-oriented institutions can compete in unique ways. Rather than spending infinite amounts of capital on technology, regional banks can focus their innovation efforts more tightly on three key areas:

• Regional Knowledge: As a regional bank, you know your local area and region far better than larger commercial or corporate banks ever could. Leverage this knowledge to your advantage by assessing what your specific community wants out of a bank and offering them highly tailored services.
• Niche Services: Focusing on a niche can significantly drive profitability and stability for regional banks. For example, as a regional bank you could focus in on the healthcare sector specifically, offering products and services tailored to healthcare professionals and customers. This can give your institution a unique edge that stands out from more generalized banking service providers.
• Community Connections: Along with leveraging your regional knowledge, it is also crucial to continue building upon your existing community connections. By showing customers that you are not simply going on the defensive and hiding away but instead working to support the local economy through times of financial uncertainty, you can solidify your institution’s reputation and role within the local communities.

3. Build a Clear Advantage:

Being smaller in size as a bank can ultimately prove to be one of your biggest advantages, as your institution is exceptionally more nimble compared to larger banks. This nimbleness gives you a level of flexibility that is hard for large banks to achieve, allowing you to make and execute decisions at a much faster pace. Whether these decisions are customer-facing responsibilities, such as carrying out KYC onboarding processes, or more internal processes like cost reduction strategies, your institution can achieve a lot more in a smaller amount of time. When we talk about building a clear advantage, this is exactly what we mean — determining what areas of business you can execute with greater speed than your larger competitors, ultimately building more value for customers in a shorter timeframe. For instance, regional banks still have the quantity of data necessary to glean substantial value out of artificial intelligence (AI) and its related use cases, such as predictive technology that can provide key insights into customer behaviors and trends. However, where larger banks would need more time and more layers of approval to get an AI initiative off the ground, smaller banks can do so in a matter of one or two meetings.

Why FinTech & FS Partnerships are a Key Advantage for Regional Banks

To round out your institution’s fortification strategy during the current banking failure environment, it is critically important to consider the benefits of a partnership with a FinTech or financial services provider.

FinTech and FS partnerships can be the key to not only improving your digital channels of communication and building better relationships with customers, but also to maintaining a positive growth mindset within your business.

By surrounding yourself and your team with like-minded professionals who are successful in their respective roles — such as Exadel — you can round out that competitive advantage that you worked so hard to establish.

At Exadel, our goal as a FinTech provider is to ensure you have everything you need to thrive, even in the most challenging times in the banking industry. Whether it’s a platform implementation, IT managed services, or ongoing support, Exadel covers all of your technical bases so you can focus more on innovation for your customers.

Reach out to Exadel today to find out how our team’s decades of experience can benefit your institution.