{"id":8221,"date":"2023-08-05T18:23:36","date_gmt":"2023-08-05T18:23:36","guid":{"rendered":"https:\/\/isafespend.com\/personal-finance\/banking\/the-banking-crisis-has-only-just-begun\/"},"modified":"2023-08-05T18:23:36","modified_gmt":"2023-08-05T18:23:36","slug":"the-banking-crisis-has-only-just-begun","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=8221","title":{"rendered":"The Banking Crisis Has Only Just Begun"},"content":{"rendered":"<div>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">OBSERVATIONS FROM THE FINTECH SNARK TANK<\/h2>\n<p>In an article titled Is the Banking Crisis Over? We Are About to Find Out, the Wall Street Journal identified three concerns that could determine if the banking industry is out of the crisis or still in one:<\/p>\n<ul>\n<li><strong>Deposit costs. <\/strong>High interest rates have forced many banks to pay more to retain deposits (often via brokered deposits), while many institutions have seen deposits flee to higher-yielding money market funds.<\/li>\n<li><strong>Bond losses. <\/strong>Rising interest rates depress the value of low rate securities and loans. Banks had more than $500 billion in unrealized losses on their securities at the end of March. Holding these assets can impact profitability because banks can\u2019t lend those funds out or invest them at higher rates.<\/li>\n<li><strong>Commercial real estate loans. <\/strong>Banks are anticipating losses in their commercial real-estate portfolios. Many mid-size institutions, with a heavy concentration of commercial real estate loans in their portfolios, could be impacted by the low occupancy rates in commercial real estate.<\/li>\n<\/ul>\n<p>One bright spot for the banking industry is Americans\u2019 rising appetite for credit card debt. The Credit Card Competition Act of 2023 could negatively impact banks\u2019 ability to generate interchange fees and reduce the amount of capital they issue, however.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Out of the Frying Pan and Into the Fire<\/h2>\n<p>Even if Q2 results are rosy beyond expectations, bankers shouldn\u2019t delude themselves into thinking the industry is out of crisis mode. The crisis the WSJ is alluding to is the short-term \u201ccrisis of 2023.\u201d The industry, however, is in the throes of the \u201c<strong>Crisis of the \u201820s,<\/strong>\u201d a crisis that will last the entire decade.<\/p>\n<p><fbs-ad position=\"inread\" progressive=\"\" ad-id=\"article-0-inread\" aria-hidden=\"true\" role=\"presentation\"><\/fbs-ad><\/p>\n<p>This crisis touches banks\u2019 products, technologies, people, processes, and the political climate. Here are five elements of the Banking Crisis of the \u201820s:<\/p>\n<p><strong>1) Checking accounts ain\u2019t what they used to be. <\/strong>In the first half of 2023, nearly half of the \u201cchecking accounts\u201d opened in the US were opened by digital banks and fintechs.<\/p>\n<p>There are quotes around checking accounts because bankers don\u2019t see offerings from companies like PayPal and Square as checking accounts. But young consumers don\u2019t know the difference between a checking account and the Square Cash App account or PayPal payment account. They all enable consumers to make payments.<\/p>\n<p>Square\u2019s and PayPal\u2019s product, however, enables consumers to do a range of activities that would require them to open multiple accounts at banks.<\/p>\n<p>In addition, banks have learned\u2014or are learning\u2014that the checking account isn\u2019t the anchor product (for a broader relationship) they once thought it was.<\/p>\n<p>Without reinventing their product set, banks won\u2019t survive the Crisis of the \u201820s.<\/p>\n<p><strong>2) Zombie cores.<\/strong> A person\u2019s core has to be in shape\u2014and so does a bank\u2019s. Getting their core <em>systems<\/em> into shape has become either a nightmare or an impossibility for banks. The bank technology landscape is littered with what Cornerstone Advisors\u2019 Brad Smith calls \u201czombie cores\u201d\u2014core apps that haven\u2019t been sunsetted but are no longer supported by or enhanced by the tech companies that sold them.<\/p>\n<p>Banks have two options throughout the rest of this decade: Core replacement or core modernization. Neither option is cheap and neither option is fast.<\/p>\n<p>The good news for banks is that this situation has given rise to a new category of tech firms like Core10, PortX, Constellation, and Sandbox Banking\u2014let\u2019s call them core integration platforms\u2014that promise to make it easier to integrate ancillary systems to existing cores and create a strategy for core replacement.<\/p>\n<p><strong>3) The people shortage. <\/strong>Core integration platforms are a good thing for banks, but the new reality is that banks will still need people to put things together. The (mid-size) bank IT department has evolved from being a builder to a vendor management team and will evolve further in this decade to becoming an integration team.<\/p>\n<p>Finding these people\u2014and others who bring expertise in technologies like machine learning, conversational AI, and generative AI\u2014will be the number one challenge for banks throughout the rest of the decade.<\/p>\n<p>A new reality facing banks throughout the Crisis of the \u201820s: The four walls of a bank are no longer there.<\/p>\n<p>The amount of work and positions that will need to be outsourced or partnered for means the typical bank may find that nearly half of the people working \u201cwith the bank\u201d don\u2019t work \u201cfor the bank\u201d\u2014or even \u201cat the bank.\u201d<\/p>\n<p><strong>4) The creativity imperative. <\/strong>Every management fad has a life cycle and the innovation fad is on its last legs. For the past five years or so, banks have obsessed over \u201cinnovating.\u201d Other than an ad hoc innovation team led by someone with a lofty Chief Innovation Officer title, few banks have truly created any innovations.<\/p>\n<p>That isn\u2019t to say that they haven\u2019t made a lot of internal changes and improvements, but the vast majority of these efforts don\u2019t live up to the innovation label.<\/p>\n<p>Banks need to stop playing innovation charades. With the influx of new technologies, the challenge isn\u2019t \u201cinnovation\u201d but \u201ccreativity\u201d\u2014how can they, at an organizational level, make more creative use of data and technology than their competitors, and how can they help their people become more creative in getting their jobs done.<\/p>\n<p><strong>5) The political element. <\/strong>For some politicians (you know who they are), banks are the scapegoats for society\u2019s ills. Increased regulations from a bank-unfriendly government works against all the things banks need to do the survive and thrive in the Crisis of the \u201820s.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Overcoming the Crisis of the \u201820s<\/h2>\n<p>Two types of banks will be winners come 2030: The lucky and the smart. It\u2019s always good to be one of the lucky 1%, but most banks will need to be smart and that means:<\/p>\n<p><strong>Lengthening the strategic planning horizon. <\/strong>Too many banks only plan out one to two years\u2014and pay lip service to ensuring years. Banks need to pay more attention to years three through seven (focusing on the the five elements of the Banking Crisis of the \u201820s).<\/p>\n<p><strong>Building new strategic capabilities. <\/strong>Too many banks go into the annual planning process and identify projects they intend to complete in the coming year. But they typically don\u2019t assess their internal ability to get the project done. So they rely on third-party resources when they should have developed the skills internally.<\/p>\n<p><strong>Determining a new strategic focus. <\/strong>Community-based financial institutions can no longer rely on their geographic communities for growth. They\u2019ll need to carve out niches that they believe they can serve better than other institutions and look for members of that niche where ever they are.<\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.forbes.com\/sites\/ronshevlin\/2023\/07\/17\/the-banking-crisis-has-only-just-begun\/\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>OBSERVATIONS FROM THE FINTECH SNARK TANK In an article titled Is the Banking Crisis Over? We Are About to Find Out, the Wall Street Journal identified three concerns that could determine if the banking industry is out of the crisis or still in one: Deposit costs. High interest rates have forced many banks to pay<\/p>\n","protected":false},"author":1,"featured_media":8222,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[52],"tags":[],"class_list":{"0":"post-8221","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-banking"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.12 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Banking Crisis Has Only Just Begun | iSafeSpend<\/title>\n<meta name=\"description\" content=\"OBSERVATIONS FROM THE FINTECH SNARK TANK In an article titled Is the Banking Crisis Over? 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