When economic times are good and funds are relatively easy to lend without meaningful short-term risk, most financial institutions find themselves in strong positions from a credit risk and earnings perspective. Yet, the tough lessons of lending and risk over the past 30 years have taught us many times over that economic cycles repeat. It’s an all-too-often forgotten pattern that reminds us that good times, which always seem to feel like they are here to stay, only last so long.
Each of the major economic downturns over the past 30 years has had significant impacts. For one, each downturn was the catalyst for industry consolidation as institutions that failed to sufficiently prepare for the downturn found themselves in the regulatory crosshairs for closure. Secondly, for those institutions that weathered the storm, the regulatory lessons aimed at promoting change for the future were often significant enough that mergers and acquisition were the result.
Adapting to expanding requirements always challenges organizations that are in a position to stay in the game and choose to do so. Fortunately, for those organizations, technology often comes to the aid. Using that technology, however, creates its own risk factors.
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