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.

Business and consumer loan products, deposit account products, treasury management products and services, and your institution’s website are all examples of “bank products,” and all these bank products deserve a product manager. This week, we are taking a look at 10 essential roles for a banking product manager.

The problem is that institutions’ marketing departments focus on marketing “all products” but there is no operational owner for the individual products. Therefore, products are like orphans. They are birthed and then are left on their own to go through life. While that may be a drastic analogy, that is exactly what happens with products at most financial institutions resulting in product failures, no accountability to maintain products, or no one knowing each product’s profitability.

The Marketing Committee (if you have one) is a great place to start the discussions of individual product management. Although it’s a good idea to work together as a team on the marketing of products, each product needs and deserves the attention of one non-marketing person accountable and responsible for managing the product through its life cycle.

We recommend formally defining the role of a Product Manager.  What does it entail to be the banking product manager for a specific product or line of products?

Let’s study the overall responsibilities of a Banking Product Manager:

1. Solve Customer Needs with a Solution

Product Managers ensure that it’s always all about meeting customers’ needs! They survey customers and research what’s available in the market as well as competitors’ offerings.

2. Product Ideation and Creation

Once a Product Manager knows what customers are asking for, the next step is to answer the question: Are you going to create/develop a new product or are you going to see what the market already offers? Most institutions don’t have the resources to develop products internally, so they look at market options.

3. Define a Clear Target Market

Product Managers know exactly what type of customer (business or consumers) will buy your new product before launching new products. Furthermore, to sell business products, knowing who inside a business is your target “persona” helps you create a “personalized and customized marketing approach.”

4. Manage Vendor Relationships

Product Managers select the right vendor whose product will integrate best with your core system and is a critical step in the implementation process. Additionally, they must follow the vendor due diligence established on your Vendor Management Program.

5. Manage Product Profitability

For some reason, in the past, community banks and credit unions have offered products that they believe account holders expect for free. Yes, there are some products that, unfortunately, because every other financial institution offers for free, then you feel obligated to give it away. However, you must be very careful to study the actual product cost of development and ongoing maintenance. This includes what the core system provider or third-party vendor charges your institution on an ongoing basis. Once again, bank product management ensures profitability.

6. Collaborate with the Marketing Team

The Product Manager should hold a seat on the marketing team and ensure a marketing plan for each  product exists. They can also assist the marketing team with messaging for similar products such as Remote Deposit Capture and Mobile Deposit and educate your customers as to which may be a better fit for them.

7. Ongoing Surveying and Communications

The Product Manager continually requests feedback from product users. That is the only way to continue improving products. Similarly, it may be the only way to discover a specific product is no longer needed/wanted and needs to be sunset. Sometimes you may decide to switch vendors and the existing product will have different functionalities or a new look.

8. Product Reporting

The Product Manager collects data and report to the Marketing Committee as well as to the leadership—especially if the institution made a significant investment in a new product. There should be an ROI for each product.

9. Product Life Cycle Management

Product Managers ensure the product is launched successfully, monitor the life cycle of each product, and recommend if, at any time, it’s time to end a product. Often, retiring an old product and creating a brand new one gives the institution an opportunity to create awareness about services that your existing clients didn’t even know you offered.

10. Product Training

Product Managers are responsible for making sure the sales and operations teams are fully trained in each product. Everything from results, benefits, features and onboarding procedures need to be trained to the staff.

Bonus Item: The Right Talent

Banks and credit unions need to allocate the right talent and experience to fill the position of a Product Manager. Some of the key talents needed are project management, leadership, ability to communicate with customers, peers, technical staff, operations, and sales teams. In addition, you need someone who can handle multiple priorities and work with the various teams on different parts of the project simultaneously.

Many financial institutions see the Product Manager position as an expense because they don’t necessarily bring sales to the institution. However, having a Product Manager will ensure that your institution is on top of new products, that your products are solving customers’ problems, and that products get the individual attention they deserve to live through the life cycle successfully. Defining, developing and staffing the Banking Product Manager role shows your institution is trying new things and continuing to look for solutions to your customers’ needs.

Have more responsibility ideas for this position? Let us know in the comments below.