We all remember the scene in “It’s a Wonderful Life” when there is a run on the bank, and everyone wants to withdraw their money. George Bailey desperately begs everyone to use moderation and uses his own honeymoon fund to pacify the organization’s unsettled constituents and defuse the crisis.
It’s a feel-good story that came out within two decades of the greatest series of bank failures in America’s history: the Great Depression. The scene in Bailey Brothers Building & Loan in sleepy Bedford Falls also underlines a very real potential reality, which occasionally takes place on a much larger scale.
I’m not just talking about bank runs, which involve jumpy stakeholders. I’m talking about bank failures as a whole, which occur when a bank takes on too much risk and can’t meet its obligations.
We’re currently facing the first major banking crisis since the Great Recession in 2008. We’ve already seen some major interventions—banks borrowed $300 billion in the first week that federal funding was available—and more could be coming.
With massive support already in place, the question is, how much is too much? How many loans should the government offer failed businesses? How much would you pay to avoid a bank collapse? Can you even put a price tag on avoiding a banking collapse and all of the catastrophic side effects that it could bring with it?
Now, it’s worth pointing out that the risks to consumers are technically fairly minimal here in the short term. Most of the money in most institutions is insured by the FDIC, which is funded by premium insurance payments, not taxpayer dollars. (Although this isn’t always true. In cases like Silicon Valley and Signature banks, at least 90% of deposits were uninsured.)
This kind of fear of repercussions is what pushes government officials to take action. The Biden Administration is funneling loans toward banks, which should be repaid, but even then, it’s a free lifeline that has to come from somewhere initially.
As Jim Pendergast, Senior VP of altLINE by Southern Bank, says, “In theory, your money is safe. But that’s a bit like saying your house is safe during an inferno if you have fire coverage. It’s not a stress-free process to go through.”
The biggest threat here really is more long-term than short-term, and it can take a couple of different forms. On the one hand, the government could bail out a bank that ultimately fails and cannot repay the borrowed funds.
On the other hand, if a major bank is simply allowed to crash and burn, it can start a domino effect that could lead to major economic disruption. In a state like the current economy—which is flirting with a recession—a failed bank could be like the spark landing on the powder keg.
A third element of all of this that is worth keeping in mind is the major shifts and changes to the financial system that often come about from these kinds of crises. Columbia University professor Kathryn Judge pointed this out in the interview with PBS linked above, where she said, “It’s going to require us to revisit the entire bank regulatory framework. That’s far more significant than the modest costs that other banks will pay.”
The entire banking scenario is complicated and fluid. That makes it difficult to answer the question of “how much is too much” with a specific dollar figure. But trying to do so unearths an even more important truth: quality risk management is essential in the modern business landscape.
The CFO has been a signature member of the C-suite for a very long time. When banking and finance are brought up, most people think about finance officers overseeing major monetary decisions within a business.
But there’s more to the role of keeping a business alive and well than hiring a CFO. CROs (Chief Risk Officers) are playing an increasingly important role in the upper echelons of major companies—and the timing couldn’t be better.
The volatile nature of the modern market demands an adequate response from leadership teams. CROs answer that need by overseeing (and ideally ameliorating or at least minimizing) business risks that threaten productivity and profitability.
CROs oversee a legion of risks most modern companies face, both internally and externally. From the need for retention and upskilling of employees to navigating wild market swings and rampant inflation, CROs keep their finger on the pulse of why your company is thriving and what threatens that success.
Can you think of a better time in American or even world history for a proven CRO? The 21st century has proven itself to be a dynamic and innovative era to date. However, its unique, technologically-driven nature has also eroded its stability. Risks are rampant.
“Can you think of a better time in American or even world history for a proven CRO?”
At Stanton Chase’s Los Angeles office, is able to dig deep into extensive, proprietary databases with talent pools that allow for placement of top performing professionals without tokenization of diverse hires. Top talent continues to drive performance and profitability in leadership and the track record of diverse placements speaks for itself. A talented individual put in the right situation can work wonders to help companies manage their risks and avoid scenarios like what the banking industry is facing at the moment.
CROs are a critical piece of long-term success. If the rest of us in the non-banking world can learn one thing from the current unrest, it’s that risk management matters. Don’t let it slip off your radar.
William Brewer, CCP, is a Director at Stanton Chase Los Angeles. He is also Stanton Chase’s Global Human Resources Practice Leader. Prior to moving into executive search, Bill had 25 years of experience in corporate human resources. In addition to his executive search career, Bill is an adjunct Professor at the University of Redlands. Bill also serves as a mentor for the MBA program at the Paul Merage School of Business at the University of California, Irvine (UCI) and has been a mentor with the School of Business at the University of Redlands.
Peter Deragon is a Managing Director at Stanton Chase Los Angeles. He is also the Global Practice Leader of our Supply Chain, Logistics, and Transportation Practice Group. Additionally, Peter is active in the CFO Practice Group and Financial Services, where he started his career. He has 30-plus years of experience as a trusted adviser and manager in B2B environments. Peter also supports charitable organizations, especially those focused on ocean stewardship.
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