Don’t wait until it’s too late to prepare your bank for an economic downturn

Posted by Bethany Wood on Tue, Jun 7, 2022
Bethany Wood

As Americans are beginning to feel the weight of current inflation, thoughts of a coming recession have been on the minds of many. Earlier this month, the Federal Reserve raised interest rates for the first time since 2018 in an attempt to combat inflation. While this announcement has put some minds at ease, there are still many Americans concerned this is just further evidence a recession is coming.

According to a survey by CNBC, more than half of economists and investment professionals think the Fed’s attempts to combat inflation will eventually lead to a recession, and eighty percent of small business owners expect a recession is coming by the end of the year.  

While predictions on the timing of a recession are usually off, many experts are advising people make preparations for a coming recession. Bankers know that a sudden economic downturn can quickly turn healthy assets into criticized assets. 

While every loan is created with the best intentions, very few people are thinking of the bad times while experiencing the good times. As said by former Comptroller of the Currency Thomas Curry, “the worst loans are made in the best of times.”1 

Throughout the pandemic and short-lived covid recession, community financial institutions proved just how essential they are to their communities through their incredible outperformance of big banks in processing Paycheck Protection Program loans (we already knew they’re amazing, but we’re glad the rest of the world knows it now, too). Keep up that momentum by preparing now for what’s coming next. The way you identify, manage, and monitor your criticized assets could make or break your bank as we weather the coming storm in the following months and years. 


Focus on Relationships 

You already know how important relationship building is in the banking industry, but understanding each customer’s unique situation can help immensely in managing your criticized assets. A relationship aggregation tool can help simplify this process by giving you an in-depth look at your customer at a glance. It takes time to grow these relationships, too. If finding the time to build and maintain good relationships with your customers is hard to come by, it may be time to reconsider your processes. Your bankers should be focusing their time on the customer, not their paperwork. 


Simplify the Process 

A simple, easy-to-use process will help free up the time needed to focus on relationships with the customer. Satisfied customers are the lifeline of a community financial institution. Using a software solution like Teslar takes all the heavy lifting from the banker’s shoulders. Our Criticized Loan engine will automatically identify and group relationships based on loan classification codes. Teslar also automatically collects and documents account information, payment history, and classification history, so the officer needs only to fill in the narrative and submit. This saves hours of tedious and monotonous labor on your end, freeing up time to focus on those aspects that will really set your financial institution on top—customer experience. Freeing up your bankers to help guide borrowers through these times could be your most essential risk management tool. 


Adjust the Way You Monitor Your Loans 

Every financial institution follows different criteria to determine whether a loan is classified as criticized or not— risk ratings, dollar amount, days past due, accrual or nonaccrual, etc. Consider your current criteria and determine if these rules need to be changed or modified in an effort to catch these loans earlier. If using Teslar’s module, the loans that meet your criteria will automatically be identified and marked as criticized. 


Change is never easy, and doubly so when you’re not quite sure what exactly you need to be preparing for. Many financial institutions like to be cautious and wait and see, rather than make those changes ahead of time. Taking this course of action might come with unintended negative consequences, though. Global consulting firm Protiviti warns, “Many financial institutions were blindsided by the last meltdown [The Great Recession of 2008]. And the risk of being blindsided remains, given the multitude of potential drivers of a downturn. For that reason, it is essential for banks to go beyond identifying the obvious problem assets in their portfolios. They also must take a close look at borrowers with structural or operational issues, including those that have kept current with payments through interest reserves or payments from other sources.” 

Focusing on criticized assets and loan review processes today can help your financial institution stay ahead and remain resilient during the (likely) coming financial downturn. If you’d like to learn more about how Teslar can help you accomplish this, we’d love to help! Contact us at to discuss details or schedule a demo of our solution! 

Topics: Banking

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