Increased employee engagement through education and training is a brilliant strategy. Yet one of the first budget items to go away in tough times is the education and training budget! Why is that? Because community banks and credit unions may not have discovered the true value of continued education and training for their employees. Below are 6 reasons to increase your training budget, or at least continue, your education and training budget during tough economic times.

1. Education and training are different. You need to do both.

Education is more formal in that your employees obtain a college degree or a specific certification in their field. Examples of formal education are a Compliance and Bank Secrecy Act Officer Certification, Commercial Lending School, Financial Management School, Human Resources Certification, Community Bank IT Security Officer Certification, and others.

Training is more informal where your employees attend seminars, webinars, workshops, or simply have one employee train another. Training ensures the standardization of your internal processes and procedures across branches.

2. Education keeps your employees’ minds learning.

The more employees learn the more they learn. In other words, as employees attend training in various areas, employees’ minds open to learn even more. Learning is a tool to keep your employees engaged in their specific jobs and also to learn about other areas of the institution they may want to move to later.

3. Continued and ongoing training creates a culture of cross-training.

The goal in cross-training everyone in the organization is for your customers or members to always be serviced, regardless of who is in the office or out. At the same time, you may find that the person who is cross trained actually performs the duties better than the incumbent. This is good to know in case the employee in that job leaves the organization. You then have an automatic backup already trained. Make sure to add in everyone’s job descriptions that cross-training is part of their jobs so no one can say they didn’t know that learning or doing somebody else’s duties was not part of their job.

4. Education and training create a pipeline for succession planning.

When everyone knows somebody else’s job, they may share their interest in someday doing the other job at some point. Or, at a minimum, they will enjoy performing the other person’s job as a backup and not feel inadequate during that person’s absence. The cross-training culture naturally creates a pipeline for succession planning because the leaders can take notice of who performs each job best. Similarly, cross training opportunities create career paths for everyone.

5. Continued education and training result in a culture of engagement.

A culture of cross-training produces a culture of employee engagement. Employees appreciate that the organization invests in them to train them and give them the tools necessary to succeed in their jobs. Even if they end up leaving, they will never forget that you provided these opportunities to learn. But most likely, they will want to stay to continue learning. Their increased loyalty may lead to new potential career paths they didn’t plan without the additional training.

6. Tracking education and training results in increased credibility with your regulators.

And as an added bonus, when regulators see a robust education and training program, it shows your commitment to investing in your employees, which results in a more safe and sound institution. The more trained your employees are the less errors they will make with account holders. That in turn leads to increased customer satisfaction and potentially higher profits for your institution.

I hope this blog encourages you to keep your education and training budget, and hopefully increase it, during tough times. Employee engagement is a retention strategy. And you can attain increased employee engagement through education and training.

What happened with the recent bank closures in 2023 is all about managing all risks and tackling every aspect of risk—at the same time! As you can see from the various events that led to the closure of several banks, one type of risk led to another in a chain reaction until the regulators closed their doors.

One of the most important things to know about Enterprise Risk Management is that all the risk categories are interrelated. This means that when your institution experiences one type of risk, immediately, or simultaneously, you will experience another type of risk.

Chain of Events

When the Pandemic happened in early 2020, (see blog about how the Pandemic affected all other risk categories), the government’s reaction was to provide the biggest cash stimulus in the history of the country. With the extraordinary influx of cash to individuals and businesses, the financial institutions encountered a tidal wave of cash which represented an “excess” of liquidity (risk). This cash was sitting idle not making any profits for the institutions which led to earnings risk. Then most institutions decided to invest the excess cash, and many chose government securities. The decision of how much to invest, for how long, and in which investments was a crucial management strategic decision and thus strategic risk.

The Decision’s Consequences

Unfortunately, many institutions of all sizes made the wrong decisions. They invested too much of their excess cash for too long of a term, not in a laddered maturity structure, and at extremely low interest rates. But that was better than making zero money on the extra cash, right? However, as a result of the government stimulus, inflation happened. Now, to combat inflation, the Fed started raising interest rates (interest rate risk) at such fast pace that institutions quickly found themselves upside down on the value of their bonds. The Other Than Temporary Impairment (OTTI) happened, and institutions’ balance sheets now showed millions, and for some billions, of dollars in unrealized losses.

This situation became now a liquidity (risk) crisis for certain institutions, and they experienced capital risk when they had to realize the unrealized losses from the sale of their securities. Lastly, when word got out that certain institutions were in need of raising additional capital, the bank experienced a run on their deposits. This is a perfect example of reputation risk. In the end, reputation risk is what sealed the fate of these institutions.

Your Reputation Risk

Your reputation is your most priceless possession, and you must protect it at all costs. You protect your reputation when you establish strong policies, procedures, and safeguards in all areas of risk. You then ensure none of the risk categories start a chain reaction that could end your existence. This blog is a simplistic way to explain what happened to certain regional banks that experienced several risk categories one after another and almost simultaneously for some risk categories.

This catastrophic event serves as a perfect example on how it’s all about managing all risks—at the same time. This is the “M” in the CAMELS ratings that regulators focus on to ensure your Board of Directors and senior leadership—management—can in fact manage all the potential risks your institution faces now and in the future. As an emergency reaction, the government stepped in and created a new program called “Bank Term Fund Program” (BTFP). But institutions must be cautious on using this new liquidity funding source because it may imply a liquidity weakness which creates immediate reputation risk.

The Tone at the Top

Can the Board of Directors and senior leaders tell your institution’s story from the risk perspective? Do you know your unique risks such as portfolio concentration, depositors/relationship concentrations? Do you allocate the appropriate resources to ensure your institution is truly safe and sound from every risk category? Is ERM an afterthought at your institution or is it a monthly Board meeting agenda conversation? The “tone at the top” is crucial to identify, assess, mitigate, monitor, and report all your risks. I encourage you to complete and formalize your ERM Program.