FTDO: Go ahead; Prove It To Yourself (and hopefully sleep better at night)

Summary:   Part three of our series. History often rhymes. Preparing for potentially similar results is a good business practice even if the rhyme this time is different than previous rollercoasters of 1980, 1990, 2001, 2007, and 2020. What we do know is that we can’t predict future curve balls – but we can anticipate the scrutiny we might face from shareholders, examiners, regulators, and BODs regarding unrealized losses in securities portfolios and decreasing capital ratios. What we do know is that Dodd-Frank and subsequent OCC Guidance will likely become front-and-center discussion points examiners and regulators in subsequent quarters, and for some years to come.

“Failure to maintain an adequate investment portfolio risk management process, which includes understanding key portfolio risks, is considered unsafe and unsound practice.”

- from OCC Guidance. 12 CFR Parts 1 and 60.

Challenging times require greater oversight.

A monthly report from multiple sources that looks at your security portfolio’s ‘credit worthiness’ and ‘market risk’ can help with the institutions “liquidity risk’, ‘capital risk’, and ‘operational risk’ – particularly heading into what could be continued challenging environments. We believe that quarterly is likely not enough in these times.

“Risk Management and Lessons Learned (which highlights lessons learned during the (past) market disruptions and re-emphasize key principles).” 

- from OCC Guidance. 12 CFR Parts 1 and 60.

“A robust credit risk assessment framework … measured, monitored, and controlled...” 

- from OCC Guidance. 12 CFR Parts 1 and 60.

Allow additional independent analyses to demonstrate and help convincingly. 

Demonstrate that security portfolios are well managed. Support your risk review with additional resources that address questions that are entering the conversation, will continue to, and will likely remain persistent for some time. During times like these, more supporting information to check soundness, and maintain soundness is difficult to argue against.

“Supplemental Guidance, Unsafe and Unsound Investment Policy Practices (which alert banks to the potential risk to future earnings and capital from poor investment decisions made during periods of low levels of interest rates … to control risk.

- from OCC Guidance. 12 CFR Parts 1 and 60.

Move toward the tried and true. Incorporate FinTech oversight in near-real time.

What used to happen in years, then became quarters, and now happens in mere months (if not weeks). It’s often difficult for staff to keep up. FinTech oversight can help alleviate tasks and present the important outliers, in the background and in near-real time, making oversight of an institution’s investment portfolio both more rigorous and likely easier so the institution can focus on its core business – lending. Consider FinTech and data science to better get ahead and away from staring in the rear-view mirror for answers. Use diverse and better inputs to meet the below guidance head on.

“Maintaining risk processes to manage market, credit, liquidity, legal, operational, and other risks of investment securities” 

- from OCC Guidance. 12 CFR Parts 1 and 60.

What the markets, thought leaders, and media see ahead of us.

No one knows what will happen, but history does tend to rhyme. Consider placing yourself at a bank in mid-2007, late-1999, mid-1980 with the knowledge you have today regarding investment portfolios and what regulators will be looking for today – fill the gaps and seek out solutions that save the bank money, bolster actionable insights, drive better investment decision making, and simplify bank effort.


The specifics. It's likely worth a re-read.

Please find attached the OCC Guidance 12 CFR Parts 1 and 160. It speaks to both the purchase of and continued oversight of securities. It's the "and" we want you to focus on in this reading.

As always, consider a first, second, or even third opinion from SB Value Partners by eMailing or calling us back today. Let SB Value help you examine all these, and other methodologies, to build out your future pathways to optimizing your success.

Questions? ASK US HOW to start a complementary analysis now. It’s a great time to get some additional clarity. Learn some additional truths on the front end. It may position your bank for added improvements into 2023 and into a better positioning for 2024. Listen to what a few thought leaders have to say who have written white papers on the topics at hand. Take a read through a few Fact Sheets and SME articles on the subject that we would be happy to provide.

As fiduciaries we see quite a lot – in fact we have recently reviewed just under 17,000 data points from Community Financial Institutions – likely just like yours. We look forward to sharing with you some of what we have learned over the last three decades. In the meantime, we thought we would help with some general information that you and your team can consider right away to round out what you are already doing. There is a lot that’s beneficial, starting with cost savings, yield improvements, potential risk reduction, and likely better balance – even protection. To find out more please click here or go to our website.