Communication Skills Mark Success in Bank Management
Leventen, Alan C., American Banker
There appears to be an ever increasing dichotomy between successful and mediocre asset/liability management teams within the commercial and savings bank industries. This is the conclusion reached from extensive interviews conducted by my colleagues and myself with asset/liability managers nationwide over the past year.
It appears that financially successful commercial and savings banks employ asset/liability managers who identify, analyze, solve and communicate solutions to the myriad of challenges facing banks today. Other banks' teams have great difficulty with, or fail altogether, in dealing with a) increased competition for funding and asset profitability, b) regulatory confusion, and c) an uncertain interest rate environment.
The financial results of this latter group typify these difficulties. The pivotal element, however, is people, who ultimately make the difference in meeting the challenge. The successful team is usually led by the chief financial officer, an individual who must balance a strong technical mind with equally strong communication skills.
Without the latter, the chief financial officer can hardly hope to garner the support of the chief executive and the board, who must approve any proposed innovations of substance. And innovation, for its part, is necessary to meet the challenge.
Periodically, one runs across a board of directors so inertial and unimaginative that even the most talented asset/liability managers can be relegated into corporate listlessness, such that a never-ending cycle of mediocrity ensues. Successful asset/liability management, which is the cornerstone to any successful bank, comes from talented people who, with any luck, are blessed with an enlightened board.
Within my own area of professional interest, namely, interest rate risk management, I continually witness the reinforcement of the above generalization. Some of the experiences are described below.
Without a doubt the greatest divergence in success levels in asset/liability management can be found in the S&L industry. Success rates are lower in general, relative to commercial banking. Nonetheless, there exists an elite group of S&Ls both large and small, which are consistently profitable (regardless of interest rate movements), maintain customer loyalty, and set standards in product innovation. Capable Officers
These institutions inevitably employ a chief financial officer and asset/liability lieutenants who are educated about, and proficient in, financial tools such as futures, options, swaps, and employee stock ownership plans, to name a few. Furthermore, these individuals understand how to adopt these tools to meet specific objectives within the strategic plan.
The S&L industry obviously has its own challenges, some structural, some regulatory. It's instructive to observe specific institutional responses to structural and regulatory problems. An example of the latter occurred last June when the Federal Home Loan Bank Board (FHLBB) issued its long-awaited memorandum on interest rate risk management. The memorandum required federally insured S&Ls to begin an ongoing analysis of the effects of interest rate risk on earnings and regulatory net worth.
Furthermore, it placed the onus on the board of directors to oversee the analysis and implementation of its respective program. Implementation is interpreted to mean taking active steps to reduce interest rate risk.
The dichotomy again has shown its colors. The successful S&Ls, for the most part, had been quantifying and hedging their unwanted interest rate risk long before the memo was issued. The key asset/liability players realized that the odds against consistent profitability from an unhedged gap problem are too great to justify not doing anything. At any rate, there were two institutional responses from the remaining S&Ls around the country. …