Preparing for a Downturn: Why Flexibility is Essential for Financial Services in an Uncertain Economy

You don’t have to be a fortune teller to see that prioritizing preparedness for unfavorable market conditions is a wise move for Financial Services providers. With household and real estate debt at all-time highs, interest rates continuing to skyrocket, and the national debt rapidly approaching its ceiling, all macroeconomic indicators signal that the shoe is about to drop. As these conditions worsen, lending will increase and deposits will decrease, leaving banks with less capital to distribute and more demand to satisfy. 

Additionally, Financial Services institutions that don’t heed these warning signs risk becoming the focus of consumer panic. Historically, the fall of one bank tends to cause a cascade of mass withdrawals from similarly segmented institutions that may result in further closures. As demonstrated by the recent collapse of Silicon Valley Bank (SVB), there is a building storm that institutions may struggle to weather amid a backdrop of a developing long-term financial decline. 

As such, our aim is twofold: to provide Financial Institutions with a strategy that will aid in weathering the immediate shock of sudden events and to suggest a reliable means of securing deposits. Let's start by understanding and adapting to the most immediate challenge: the risk posed by SVB’s collapse. 

Immediate disaster prep: Short-term liquidity 

The primary cause of Silicon Valley Bank’s collapse was poor risk management. While SVB began 2023 with high deposits and consumer confidence, it chose to invest a disproportionately large amount of that money (about 55%) into treasuries with no hedges in place. This decision left SVB with very little liquidity and forced reliance on a future payout – and as interest rates elevated, the market value of these treasuries decreased. Of course, leadership attempted to cash in to minimize damage – a decision that eradicated consumer confidence and led to $42 billion withdrawn in a single day. The rest, as they say, is history. 

SVB’s biggest mistake was overconfidence in the stability of the current market setting – investing too much in bonds without proper safeguards to maintain liquidity. Unfortunately, when one large bank fails to follow proper capital management strategies, it falls on smaller and midsize banks to secure theirs. 

As such, the first step institutions should take is to evaluate their current liquidity situation and, if it’s lacking, reinforce it. There are options that come with their own costs and may force changes in day-to-day operations. Additionally, customer-facing liquidity management measures should be kept to a minimum, as the last thing a bank trying to expand liquidity needs to do is cause a panic. 

Securing liquidity in a downturn: drive deposits 

Financial Services Institutions need a reliable means of securing more deposits to attain long-term resilience. In a downturn economy, lending is elevated, and consumers will want to draw from banks’ existing resources – resources that are grown as sustained through deposits and new accounts. As demand for lending spikes, Financial Services Institutions need to respond by making it as easy as possible to open accounts and make deposits. 

Digital account opening is (and will continue to be) a crucial aspect of operations as the number of digital-only account holders increases year-to-year. According to FICO research, 71% of consumers are open to digital financial services experiences, clearly signaling the appeal of digital banking for new accounts. Every generation prefers and uses a different interface for engaging with their Financial Services providers – and to meet customers where they’re at, institutions will need to provide a wide range of digital service offerings.

Currently, however, 20% to 25% of consumers report that their banks lack the capability to provide these services. Digital account opening can give Financial Services Institutions a reliable means of securing deposits, facilitating engagement, and maintaining liquidity over time. Yet, few have the framework required to support digital account opening, remote self-service, and smooth onboarding experiences.

This is where an implementation partner like Gerent can provide a unique value-add. Our Digital Account Opening Accelerator builds upon Salesforce Experience Cloud to provide top-of-mind capabilities for banks pursuing transformation. We leveraged our industry experience to construct a solution that facilitates account opening, provides self-service options for consumers, and allows for omni-channel customer engagement. Whether you’re only beginning to explore Digital Banking or you’re an experienced player supporting Digital Operations with legacy systems, our accelerator provides the functionalities needed to action a long-term resilience strategy successfully. 

If your organization is looking to defend against uncertainty in the market, while also meeting your customers where they are at, building out a streamlined digital deposits channel will help weather the storm we are all about to encounter.

If you’re interested in seeing how our account opening accelerator can help you build long-term resilience, give us a call to speak with one of our experts. Or, learn more about our financial services offerings on our industry page.

No items found.
green background

Ready to reinvent the future?

Get Started

More from Gerent

Follow Us