ABA Banking Journal - July 2009 - (Page 6)
briefing needs it. We advise that contingency liquidity plans should not be created in a vacuum, but should be based on real-life occurrences. We have seen instances where banks had serious liquidity issues and found that their correspondent turned from them even in fully collateralized situations. Another concern is a liquidity event that affects whole regions. Will your correspondent have enough money to provide funds to all banks it has agreements with? For this reason, we would not suggest integrating correspondent borrowings or Federal Home Loan Bank borrowings into emergency liquidity needs. Further, we recommend that all banks, as part of their contingency liquidity events, sign up for various liquidity programs that the Federal Reserve may offer. Another concern is that many correspondents and bankers banks are loan participants. We believe that the credit trends at these banks must be watched very carefully. Silverton, for instance, made loans all over the country. But according to SNL, a large portion of the loans were made in Florida and metroAtlanta. This created a significant loss for Silverton—11% of nonperforming loans within the entire portfolio. With all of this information at your fingertips, you should do the following: • Watch trends in noncurrent loans, which includes nonperforming loans and loans over 90 days. • Monitor the bank’s trend in “Credit Canaries” as seen in the Credit Risk section of the OCC-produced Canary Report, which identifies high-risk banks. Although the Canary Report is not indicative of all risk, we find it an excellent advance indicator of shifts in escalating credit risk. • Look at the mix of the bank’s loan portfolio to see how closely it matches the risk profile of your own portfolio mix, and your own risk tolerance. But don’t stop there; watch how the mix may shift over time. Again, this is not to say all correspondent and bankers bank relationships are at risk—the strong ones have nothing to worry about from increased scrutiny. But the times dictate due diligence and prudence with your shareholders equity and your financial security depends on thorough analysis of every relationship and every interaction. BJ LETTERS Too big to manage? Absolutely Dear Mr. Streeter: I read with interest and a little incredulousness your column in the May 2009 ABA Banking Journal [“Too big to manage? Not so”] and your somewhat inane conclusion that running a large organization that has branches in over 25—40 states and offices around the world and has over a trillion dollars in assets is the same as running the Normandy invasion in WWII. First of all, I can see you have no idea of what the military is like. I was in the military for 7 years. General Eisenhower had generals for each corps, generals for each division, full bird colonels for each brigade, In other words the span of control for each person was fairly limited with one overall objective, take ground, kill the enemy if they got in your way, and continue taking ground and killing the enemy until their wasn’t any opposition as prescribed in the overall plan of battle. Of course, as in all things done of a large nature there were screw ups that cost the lives of thousands of men—you know, like landing on the wrong beach, One of the things I like about banking is the fact that I can fix a customer or borrower mistake. In the Army once you’ve maimed or killed someone they stay maimed or killed. However, I believe your lame point was it’s all about an idea that there are leaders and managers. Having been in the Army we didn’t have managers, managers take care of things like computers or supplies or something. Leaders lead and motivate people to accomplish a certain mission or objective. I am a leader, my AVP’s are leaders, and then we have followers, those glorious tellers, lenders, and operations folks in the trenches that make it all happen. I know their names! What about a mortgage team that sells subprime mortgages that they know are awful loans to other banks, countries, and other institutions such as insurance companies and pension plans. How would leadership play there? The question isn’t about leadership, it isn’t about managers, it’s about information, it’s about ethics, it’s about understanding what your people are capable of and what they’ll do in the pursuit of wealth. No leader of a trillion dollar institution can answer those questions at any one time. That’s why these institutions like Wells Fargo, Bank of America, Citigroup, and JP Morgan Chase need to be down sized. Because they no longer know their people, they probably don’t really understand the institutions’ culture any longer, or the kind of people they employ. I’ll wage that if any member of the Board for any of the banks I mentioned showed up at one of their branches, the staff wouldn’t know them from Adam. Too big to manage/lead? Absolutely. Jim Meyer, Pres. and CEO, Farmers State Bank; Holton, Kan. ••• In follow-up correspondence, Meyer wrote: “I agree with your traits of a good leader/manager at the end of your article. However, I have always followed 4 cardinal rules: 1. Never ask anyone to do something that you would not do yourself. 2. It is always the mission first and the people second. 3. Try never to make a snap decision; ask your people what they think should be done and then “Do something.” It is far better to do something, even if it’s wrong, than to do nothing and create an atmosphere of indecision. 4. Always lead by example.” 6 JULY 2009 /ABA BANKING JOURNAL Subscribe at www.ababj.com
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