The Leap from Theory to Practice

Putting Your Business Continuity Plan to Work

The COVID-19 crisis continues to evolve hour by hour throughout the world. The timeline for flattening the curve remains unclear. In response, federal and state governments around the country have become more aggressive in their actions to stem the spread of the virus. Clearly, we as a country are learning how to deal with a pandemic crisis on the fly.

As we speak with our large and small community bank clients, implementation of their Pandemic and Business Continuity Plans (BCP) is in process, with updates occurring daily. Plans have moved from the theoretical to the real world. Desk top pandemic scenarios documented by management teams most likely did not contemplate the magnitude of this crisis, or many of the action steps now being implemented.

The effects of the crisis have and will continue to negatively impact businesses around the world from a financial perspective, changing the way they operate and change life for all of us today and for some time into the future. With that said, we have developed a list of immediate thoughts and best practices to help your organization brace for the uncertain times ahead:

  • If you have not done so, formally declare a COVID-19 Pandemic Emergency. Notify your board, employees, and customers, and begin to implement your pandemic and business continuity plans.
  • Review current regulatory guidance for pandemic preparedness and business continuity management. Look for daily updates.
  • Your leadership and crisis management teams should develop and implement a crisis communication plan that is clear, consistent, and timely to be sent to the board, staff, customers and, if necessary, the regulators.
  • Evaluate staffing strategies:
    • What will you do if there is a positive test for COVID-19 among your staff?
    • What alternatives do you have if key people in various processes test positive?
    • Follow your employment practices policy (updated for the crisis management team).
    • If necessary, hire temporary staff to meet your needs, or redeploy healthy staff to functional areas in need. No job should be too small for anyone in these times.
  • Implement a remote work policy, if possible; it is the best way to create social distancing. Or allow functional teams to relocate to branch locations, again creating physical separation.
  • Train your staff on proper offsite usage of technology, in order to ensure compliance with GLBA and cyber policies and procedures.
  • Meet frequently to assess the latest information and guidance for the crisis, be nimble and make changes in your processes where needed until the crisis is over.
  • Document your decisions and actions, as well as the effect on critical vendors/third-party service providers.
  • Increase your current on balance sheet liquidity levels, as well as vault cash levels, to support client needs.
  • Continue to serve the needs of your existing loan customers and resist the temptation to grow the balance sheet by attempting to attract new customers, which could reduce liquidity and lower capital ratios.
  • Focus on your retail clients, possibly offering attractive deposit rates in order to ensure minimal outflow of liquid funds.
  • Utilize institutional or brokered funds, assuming the bank is well capitalized today, in order to shore up your on balance sheet liquidity.
  • Test available borrowing lines frequently and communicate with correspondent banks about your potential desire to borrow. See what their reaction is now, so you won’t be surprised.
Retail Branches
  • Practice social distancing among staff and with your customers.
  • Remind customers of your online and bank-by-phone services.
  • If possible, close branch lobbies and limit lobby services to appointment only. Direct customers to use the drive-up or ATM, until further notice.
  • Monitor and report large cash withdrawals from deposits accounts. Some banks are setting maximum daily cash withdrawal limits, such as $5,000 a day.
  • Staff should use CDC recommended safe practices while handling transaction documents with customers, especially if done face to face.
  • Staff members need to have a heightened awareness branch security and possibly be retrained on approved security procedures, particularly at branch opening and closing times.
  • Identify operational requirements to process work, maintain controls and meet the needs of your clients.
  • Understand vendor dependencies, and which vendors are key to meeting your operating requirements. We have heard about ATM service providers having problems meeting the demand for cash as an example.
  • Strategies for remote processing of work should be assessed and implemented, creating a physical separation of your staff and management.
  • Use of mobile or technological banking solutions should be encouraged, limiting face to face contact wherever possible.
Credit Risk
  • Identify industries impacted by the crisis (i.e. hotels, restaurant, small business, etc.).
  • Determine your exposure to these industries, by customer and guarantor.
  • Perform granular credit risk assessment for each customer impacted, and stress the situations with your worst-case scenarios.
  • Communicate with your customer, and assess their ability to meet their obligations to the bank.
  • Determine what, if any, restructuring might be necessary to minimize impact to the client and bank.
  • Reassess calculations for the allowance of loan and lease losses, especially qualitative factors.
  • Review current and future regulatory and accounting guidance relating to credit risk, repayment accommodations, payment deferral programs, borrower’s recovery plan, source of repayment and restructuring credit, etc.
  • Perform capital stress tests, evaluating the impact of both credit and operating loss estimates under worst case scenarios.
  • Review or develop a capital plan and a capital contingency plan, outlining the steps you will take to ensure you remain well capitalized, if the bank’s capital ratios begin to fall.
  • Consider drawing down borrowing lines at your holding company and infuse the capital into the bank, if necessary.
  • Take appropriate steps to reduce balance sheet leverage to ensure your equity ratios stay above minimum regulatory requirements.
  • Review current and future regulatory guidance on capital rules.

Artisan Advisors is here to review, discuss and assist you with any of these steps or others that you decide to implement. As former C-level execs with community banks, we lived through past shocks to our industry. While this shock is not the same as the last, we know that operating in a time of crisis is not familiar territory for bankers in the last five years. Two weeks ago, COVID-19 was a potential risk to our industry, and today, it is THE shock to our industry that must be addressed. Assuming history repeats itself, the industry will come out of this much stronger because of this real world experience. Remember, Artisan is here to help you through this challenging time.

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