Preparing financial institutions for an unfamiliar economic downturn
We are in unusual economic times. While making predictions may be a fool’s errand, the aggressive posturing among central banks to fight runaway inflation implies that we will soon be — if not already are — in the late stage of the economic cycle. However, considering the past several months of mixed economic data, the outcome of the downturn and the developments that drive it are likely to look unfamiliar. That dynamic means that financial institutions may not be able to rely on legacy approaches to navigating the fallout. The institutions most likely to succeed will be those that anticipate and learn from multiple atypical downturn scenarios and adapt to them more quickly than their peers.
Below, we walk through some of the scenarios that could define the downturn, and considerations for adapting to them.
Perhaps the only thing certain in the current rapidly evolving economic environment is that the future is uncertain — and how financial institutions respond to the uncertainty today will shape their prospects for long-term success or failure. The road to the downturn has been paved — and continues to be repaved — with “what-if” questions in search of answers to guide future operational decisions. No matter the outcome, to succeed, institutions will need to analyse and draw lessons from unfamiliar future scenarios and adapt to them as quickly as possible.
Protiviti’s Credit Risk Management team offers credit risk management consulting and internal audit services across the credit life cycle, including risk appetite, policies and procedures, underwriting and originations, problem loan management, credit and loan review, regulatory and financial reporting requirements, lender and portfolio due diligence, and ongoing monitoring and reporting. Our Model Risk team develops and validates all types of quantitative models, including asset-liability management, credit risk, economic capital, market risk, pricing and operational risk models. Our Operational Risk team helps clients build operational risk loss tracking and analysis programmes for internal losses and external losses. Protiviti also assists institutions in assessing their scenario-analysis programmes, linkages to emerging risk programmes and stress testing, and assessing and recommending detailed scenarios.
Protiviti’s global financial services practice has served more than 75% of the world’s largest banks and many of the largest and mid-sized brokerage and asset management firms, as well as a significant majority of life, property and casualty insurers.