What will the banks do this time?
Will we have to adjust to a “new normal” the way we did in 2008 and beyond?
By 2010 it was clear that the recession was not ending anytime soon. We began to talk to clients and capital providers about the “new normal” in many industries. The metrics had just simply changed. Most industries have recovered and the industry benchmarks have returned to where they were pre-recession and many industries have entirely new metrics.
Fortunately there have been structural changes, especially in the banking system. In fact, the eight largest “systemically important” banks had to specifically test for the impact of severe UK recession coupled with similar conditions in the Euro Zone and Japan and a less intense recession in Asia, and they all passed according to a Federal Reserve report. Click here for a link to the Bloomberg article on the topic.
And these banks had to draft their own obituaries – a detailed plan of what to do in the event the bank failed (now wouldn’t that just put you in a bright cheery mood if you had had to do that?). Bankers had to get much more deliberate about how they manage their operations and they have to plan for extraordinary events in ways they never did before. The most important factor at the end of the day is cash capital, or, in banking terms, liquidity – the ability to meet cash demands when they are made. Probably not a bad idea for your company to do the same. Plan to have enough cash to meet the needs of your business for up to two years without borrowing or selling assets.
Can you do it?
We may have seen a permanent shift in banking in the last several years. U.S. banks have more regulations and are under more pressures than they ever have been. They are forced to look more closely at everything they do. There has been an explosion of growth in the shadow banking system – non-bank capital allocators like hedge funds – that are filling in the gaps left by the banks withdrawal from certain sectors. It’s a different game with these operators. Vertical Capital Advisors LLC is built to help you navigate your company through the new new normal in the capital markets.