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Financial Institutions Buffeted by the Halted Economy

By Steve Picarillo

April 24, 2020

Financial institutions are facing a deluge of new obstacles as the unprecedented events triggered by the global COVID-19 pandemic are revealed.

At the onset of the year, many banks were focusing on preparing for the transition to Current Expected Credit Losses (CECL) accounting. However, since then, everything has changed.

Financial institutions’ performance will be adversely impacted across all dimensions, including fee and interest income, credit losses, and expenses, all while banks face heightened liquidity and capital pressures.

In this dynamic environment, we assist our clients in evaluating the following considerations:

  • Closely monitor credit teams, as they will be overwhelmed with inbound forbearance inquiries and newly delinquent loans.
  • Proactively triage the portfolio to focus on the largest issues first.
  • Look for early warning indicators to identify borrowers that may be under pressure in the near-term.
  • Increase the intensity and cadence of credit/loan reviews with bank trained underwriters and accredited property appraisers.
  • Update models and documentation to reflect the current and near-term economy and any changes in borrower behavior.
  • Decide on the timing of transitioning to CECL, and the impact of staying with the Incurred Loss method.
  • Revalidate models as major revisions require an independent review.
  • Revisit business and lending strategies, including branch viability, cost containment, and increased investment in technology.
  • Enhance liquidity and capital analysis, and stress test models.

With so many uncertainties, bank management teams will need to remain informed and agile. Our highly experienced teams have experience in strategy, portfolio and credit reviews, model risk management, balance sheet valuations, branch viability studies, commercial real estate, turnaround and restructure, digital transformation, as well as bankruptcy and litigation support. Our expert and advisory teams develop sound and compelling analysis, opinions, and solutions, delivered by credible and credentialed experts. Our findings are delivered in a clear and concise manner customized to our clients’ needs.