Like townspeople stacking sandbags to hold back floodwaters, our industry raised huge sums of capital. Yet the problems grew more intense. What some had called "a temporary correction" became a full-fledged liquidity crisis that is threatening the health of the U.S. and global economies. Casualties are mounting. Large institutions with histories of strong performance and loyal customer bases have been purchased for nominal amounts. The acquiring institutions have done so with equity and government assistance in the form of "coverage" for problem loans.

In an effort to stem the torrent, the U.S. Treasury is intervening in the private sector, bailing out AIG and helping to facilitate the acquisitions of troubled institutions such as Bear Stearns, Merrill Lynch, Washington Mutual, and Wachovia. Congress passed the American Housing Rescue and Foreclosure Prevention Act in July. In the United Kingdom, the government has had to nationalize some large mortgage lenders. Headlines of impending failures crash like waves over the stability of institutions struggling to maintain liquidity.

Community bank failures are not making national headlines because their impact is limited to their much smaller footprints. But their customers across the country are feeling the effects. Customers who would have qualified for credit in the past are now being scrutinized so carefully that they are becoming reluctant to borrow. Individuals with excellent credit are applying for a home mortgage and are being underwritten and re-underwritten. They are finding additional conditions attached when they arrive at closing. Credit officers and risk managers are suffering from "analysis paralysis" and are reluctant to make a credit decision.

In these challenging times, many good credit requests will go unmet. However, if we adhere to the principles of good risk management, we will maintain a quality portfolio and we’ll be able to meet customers’ expectations. Economic growth will resume. The lessons we learn today will become extremely important to many of today’s lenders who have never experienced a steep downturn. The importance of effective risk management has been elevated greatly, particularly at the enterprise level.

While the current environment is certainly stressful, it offers a unique opportunity for risk management professionals and also for RMA. Your Association prides itself on offering excellent articles, workshops, and events that place risk professionals at the forefront of today’s major issues. We must continue to avail ourselves of these opportunities for the sake of our futures as risk professionals and for the futures of our organizations. Eventually this crisis will subside and we must be prepared to meet the next one, whenever and whatever it may be.

Sonny Lyles, RMA Chair
Sonny.Lyles@banksterling.com