Over the last 18 months, the conversations we’ve had with management teams and board members across the United States have focused on concerns around interest rate risk – rates sat at or near 0% for so long that most people in leadership positions were not in decision-making positions the last time it was relevant to look at up-rate and down-rate environments. We have also been privy to hundreds of conversations around liquidity risk – rare is the institution that hasn’t witnessed material outflows of NMDs. But as we’ve looked at balance sheets over the last several months, we’ve noticed an increase in indicators of credit risk.
We anticipate that credit risk is going to increase for many institutions in the next few months for a number of reasons. Federal student loan payments are scheduled to resume for tens of millions of Americans starting this fall. Coupled with the lasting impacts of inflation, there is reason to anticipate this will increase pressure on many household budgets. Additionally, for many the stimulus money is mostly gone, Americans’ credit card debt has hit a trillion dollars, and the possibility of recession still looms. There is also concern that commercial real estate may not bounce back with work from home becoming the new norm for so many. And we’ve yet to see the ripple effect of the change in credit rating of the U.S. and several larger banks.
While none of us can predict the future, we can ask strategic questions to help prepare for the potential consequences of these and other impacts to consumer expenses, while continuing to cultivate relationships with individuals and the community in which we work. These questions are a place to start the conversation, but just as important as the “what” to discuss is the” who” – who should be part of these conversations. We see it happen again and again, strategic conversations about pressing issues that take place in silos, missing voices and perspectives that can help paint a more nuanced picture of what is happening across the organization. Making sure you are asking the right questions with the right people in the room can help you navigate this unpredictable environment.
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