3 strategies for bank financial preparedness 

Many banks currently perform quarterly static forecasts – driven in large part by regulatory obligations – to assess their cash flow. This point-in-time exercise measures the short-term impact of rate shifts, margin, and the economic value of equity, but it doesn’t account for possible changes to the balance sheet. 

A dynamic report that projects cash flow on a daily, weekly, monthly, and quarterly basis provides better insight to manage large loan portfolios, investments, and sums of money. It offers an opportunity to evaluate the potential impact of your strategy on balance sheet changes. It even allows you to assess how balances could change if you introduce a new product or adjust your pricing. And though the regulators still require quarterly forecasts – at a minimum – they generally are in favor of a more dynamic model.

Finance and retail banking teams should communicate regularly and often, especially now. Conversations about pressures the retail side is facing and broader market views from the finance side can drive a better working relationship that is more nimble, responsive, and adaptive, which can help the bank formulate the right strategies for the various product lines in its markets.

For instance, if the retail team wants to raise the money market account rate, the finance team might instead want to counter with a recommendation to borrow some or all of the desired funds. But a back-and-forth conversation could result in landing on an aggressive short-term increase in deposit pricing to take advantage of local market opportunities to grow the bank’s customer base. It might be that neither strategy is wrong or right, but communication, coordination, and timely actions between the front office and the finance team can allow the bank to capitalize on market opportunities while managing funding risk associated with growth opportunities.