How lenders can weather the storm with better risk strategies and tools
Spring and summer storms are a staple of Midwest living. Yet every time the storm alert sounds, the hairs on the back of my neck stand up. In my sophomore year, what began as beautiful spring day ended with a tornado decimating my college and the small Minnesota prairie town. Classmates still share memories of picking textbooks out of toppled trees and FEMA trailers turned dorms and classrooms.
When a Wall Street Journal headline posited that lenders are “flying blind into a credit storm,” it caught my attention. Much like a halcyon spring day, the first two months of 2020 saw healthy loan growth and continued low losses.
Today, tens of millions of consumers are in some kind of accommodation status on their loans. Payment behavior and delinquencies have been promising, but the CARES Act payments have an uncertain future. Some states and municipalities are reversing course on steps to get the economy moving, threatening further economic malaise and credit impacts.
At the same time, $2 trillion has moved onto balance sheets in the form of insured deposits seeking refuge from volatile markets — April alone saw more deposit growth than in all of 2019. And it’s not easy to deploy those deposits: we’ve seen marketing drop and underwriting standards tighten as lenders look into the metaphorical storm.
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