Improve operational resilience: Embracing modern financial planning in the wake of Silicon Valley Bank's fall

The collapse of Silicon Valley Bank and sale of Credit Suisse made an impact in more ways than one.

Aside from sending shockwaves through the global banking industry, these events highlight the urgent need for the industry to modernize its financial planning to minimize the risk of recurrence.

There is little doubt about the crucial role robust planning and forecasting processes play in balancing risk and return. However, traditional approaches are limited and simply don't go far enough in addressing all the complexities and uncertainties banks face and the need for greater agility and accuracy.

In this blog, we introduce four key strategies to help you improve operational resilience and future-readiness through financial planning modernization.

For more detailed insight, download our eBook Modernizing Financial Planning in Banking: Four strategies for FP&A excellence. 

1. Embrace holistic financial health optimization

In the highly regulated banking industry, there's a constant pull between the need to optimize profits and meet stringent regulatory demands.

Conventional planning approaches fall short in providing the insights needed to effectively align risk and return, particularly in margin planning. To thrive in this ever-evolving environment, you need a more holistic approach to planning and forecasting—one that enables you to create a real competitive advantage.

By taking a data-driven approach to risk management, integrating advanced scenario modeling, and using a connected planning platform, your team can gain invaluable foresight into different economic and market scenarios.

Your planning platform needs to be able to connect disparate data from siloed systems to create a cohesive set of financial statements. With access to connected, real-time data, you can conduct more reliable margin analysis and identify profit drivers.

Accurate projections of net interest margin and non-interest expenses, including contributions from existing loans and deposits that drive earnings, add greater context and help you make better-informed decisions to optimize margins.

Prioritizing margin planning ensures that your financial decisions align with your strategic objectives so you can achieve sustainable growth.

2. Harness real-time data

Using real-time data and analyzing customer behaviors (e.g., early prepayments, loan defaults, and retention rates) give you invaluable insights to complete your bank’s forward-looking view. Anticipating changes in customer behavior and how they might respond to adverse conditions (e.g., economic downturns, interest rate changes, etc.) helps you stay agile and respond swiftly to market fluctuations.

But without the right tools in place, it can be difficult to process and analyze the vast volumes of data available. Instead, elevate your approach with advanced stress testing techniques and “what-if” scenario modeling to better understand the assumptions behind your forecast and build consensus around the most likely outcomes.

3. Implement advanced forecasting and analysis techniques

The ability to forecast accurately and swiftly is a key business enabler in any industry. In banking, it's essential.

Advanced forecasting techniques like funds transfer pricing, driver-based expense modeling, and rolling reforecasting empower your bank to more accurately assess risks and returns. Proactive "what-if" scenario modeling further enables you to adapt to changing circumstances and adverse scenarios, ensuring you have the optimal balance of cash on hand to satisfy expected customer withdrawals while intelligently diversifying your investments in the right assets at the right duration.

Integrating real-time data and live calculations through advanced FP&A solutions enables your teams to collaborate, unlock actionable insights, and adapt to regulatory changes and market fluctuations more easily. Predictive modeling and machine learning provide you with a more precise and accurate analysis of potential risks and opportunities based on historical data and trends. Leveraging these advanced techniques supports sustainable growth.

4. Strengthen compliance and auditability

With new and evolving regulations, you need to be agile and flexible in your financial planning approach.

There's a lot at stake. You must ensure regulatory adherence, mitigate risks, and maintain transparency or risk losing the trust of customers and investors, damaging your institution's reputation.

For many banks, the use of spreadsheets in financial planning and forecasting is still widespread. But when it comes to compliance and auditability, spreadsheets are limited due to their lack of controls and security features.

To meet evolving regulatory demands, you need to look at more sophisticated FP&A solutions. These advanced solutions enable you to centralize disparate data sources, thereby reducing the risk of errors and discrepancies in financial reporting and allow you to track all changes made to financial models, assumptions, and data.

This gives you enhanced control, security, and auditability, ensuring that the financial planning process supports the same level of scrutiny as traditional accounting solutions and other back-office banking systems.

5. Differentiate strategic initiatives from business-as-usual

As competition remains fierce, you must adapt quickly, providing flexible services to meet your customer needs while effectively managing existing portfolios. As you push forward with initiatives to create differentiated offerings for customers, you need to integrate the financial implications of these projects into your bank’s overall plan.

In the past, forecasting and planning for strategic projects posed challenges due to incompatible processes and inconsistent levels of detail with standard forecasting methods. Using spreadsheets for finalizing plans and capital expenditure budgets for new business initiatives perpetuates inefficiencies and introduces the potential for errors when integrating data into the main enterprise planning tool.

To improve efficiency and accuracy, you need an advanced planning approach and technology that handles both business-as-usual and new business initiatives.

Such platforms can empower you with flexibility in forecasting, allowing you to adjust periodicity and level of detail as needed. With robust data and metadata management, you can immediately consolidate changes to operating plans, investment schedules, or capital requirements of every strategic project into the overall financial plan.

Navigate the path to success

Having a flexible, robust, modern approach to financial planning is not just an option but a necessity for long-term success.

Modernizing financial planning through innovation and efficiency equips you with the tools to adapt swiftly, anticipate customer behaviors, optimize resource allocation, and ensure compliance.

By integrating advanced financial planning and analysis tools to unlock your data, you can position yourself as a frontrunner in shaping the future of banking amidst new challenges and opportunities.

To discover more about these five key strategies, download our eBook Modernizing Financial Planning in Banking: Five strategies for FP&A excellence.