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Banks, Sharks, and Survival

Banks, Sharks, and Survival

Call Report? WTF is a call report?

Recently, a friend and I were having one of our many discussions about the banking system in this country and the problems facing business people today. We talked about the need to research your bank before you ever present a loan request, the importance of having a Plan B to share with the bank (and loan officer), and even my fondness for call reports among other things.

He reminded me that I should make more of an effort to define my terms. For example, he was right about the call reports - a federally mandated "snapshot" of the institution's finances. Most people have no idea that they even exist - much less what they mean or represent. I've even scored points with bankers over the years by asking for it by name.

More than once I've been told I was the only person who ever asked for a call report (back when they were actually printed and not on-line). Even so, the idea of including a wiki definition is a good one and I've done that here.

Plan B

His points about about "Plan B" and new borrowers are very important too. Secondary Source of Repayment - not "Plan B" - is the term bankers use and we both agree that bankers put more weight on that point than most would ever imagine. He thinks that's due to "capital issues" - meaning more is always better. And though I agree, sometimes I also believe it has to do with the prospective borrower actually taking the time to think through the entire proposal and then make the effort to put all that down on paper. From a banker's perspective, you are indeed "thinking things through"& and you're also helping them save face (not a small point) when they later present your loan proposal to their peers, the loan committee, or to superiors.

Believe me, no one wants to look foolish.

And that brings me to the the part about new borrowers. Looking foolish, lax, or being accused of not following standard lending guidelines or procedures is definitely not something any banker aspires to - especially in today "politically charged" economic climate. Big name Wall Street players may commit outright fraud and walk away unscathed to play another day, but your local loan officer, bank president, or board member will not. Often the slightest taint of "foolishness" will end a career.

In their business, people - meaning bankers - don't get fired for refusing to fund your loan, calling your credit line, or asking for more collateral than is really necessary. Nothing personal - it's just the job.

Getting Voted Off the Island

I often think of a Discovery Channel program I watched long ago. The film crew followed a large group of penguins for most of the breeding season somewhere near Antarctica. Not surprisingly, the migration of penguins is followed by a similar migration of sharks who fully intend to make a living from unlucky penguins. Though the penguins spend most of the the time on shore near the hatchery, they must enter the water to feed.

All the sharks have to do is wait.

Desperately hungry after nurturing their young, the adult penguins gather at the edge of the ice shelf and peer down anxiously into the dark water for any sign of danger. Finally, the group would "select" a volunteer by pushing it into the sea.

These days, you may know this process as a form of "crowd sourcing".

Should that impromptu flop into the water draw an immediate reaction complete with teeth, blood and floating feathers, the crowd waits a few minutes before selecting the next volunteer. This process continues until the sharks grow tired of picking feathers from their teeth and swim away looking for a change in menu.

I think your average banker feels a bit like those penguins these days. And to think, just a few short years ago, s/he was convinced they were the sharks.

Don't Be Lunch

This process of penguins being "selected" as lunch is very much like that of taking on new customers for banks and bankers who have yet to determine whether or not their particular sharks - the economy, regulators, and larger banks - have had enough to eat. As a defense, bankers do have one option open to them the penguins do not - they can just say "no".

Finding your way through all this mess is a nightmare if you don't know anything about banks, lending practices, regulatory pressures, or sharks.

Getting the money you need to meet payroll, to acquire a competitor, or to buy a piece of commercial real estate involves the careful navigation of a process - a process with a lot of moving parts. But it is a skill that can be taught. And regardless of your experience, your position, your track record or credit score it's definitely something you need to learn more about. You can improve your skills, take charge of the process, and close more deals.

Think of it as money in the bank.

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