Capital is King – Again
As we muddle through the effects of the pandemic, let’s focus on a looming question: will your bank have enough capital to survive?
The most important role you can play as a bank director is to do everything you can do to prevent a bank failure. You may need capital to do that.
How much capital? That requires anticipating the future.
How do you do that? Stress tests can help.
Read the Fed’s latest stress testing reports. They’re designed only for 33 of the largest banks, but your board can learn from them.
Listen to our episode of Calling All Bank Directors featuring Steve Lane. He has found that during the Great Recession, most of the banks that survived had tangible net worth in place before the downturn at least 1.5 times losses. It was a sliding scale below that.
Do a rigorous stress test now and apply the results to your loan portfolio. Err on the side of negativism. Raise capital while you can. The capital markets are still open.
