We’ve all read many different interpretations of the events and reasons that led up to the recent turmoil that has shaken the financial industry, particularly with Silicon Valley Bank and Signature Bank. Since 2008 – when the Great Recession began – there have been 538 bank failures in total; this includes both large and small institutions across all 50 states. These most recent bank failures have brought heightened attention to potential risks, and CEOs, CFOs, and other top executives are now tasked with navigating their businesses through uncertain times. Understanding the external societal influences experienced on finance is an important part of any executive or leadership role. We need to learn from recent events and explore solutions like trend analysis to help identify potential weaknesses earlier rather than later – allowing for corrective action before it’s too late.
Trend analysis is a valuable tool for any business owner to help them identify problems before they become too big or costly to deal with later when it’s grown to a more serious state. This same tool should be used to understand a bank’s financial status and scientifically predict the most likely outcomes from data collected. By monitoring key indicators, this trend analysis helps detect early warning signs so that action can be taken to avoid or mitigate a failure.
One of these key indicators that can be used as a reliable data point to help them identify potential risk is cultural cues. By carefully monitoring, aggregating, and interpreting societal influences and events, professional environment, and customers’ behavior, banks are able to detect seemingly minor variations in performance that could be tell-tale signs of financial irregularity. Cultural cues are particularly helpful in uncovering inconsistencies between expected and actual behavior. For example, banks could observe and quantify small changes, like if customers who typically order services or products by phone quickly switch to ordering online instead, which could provide key insights that predict a shift in the market. These insights don’t begin to reveal themselves until you add it to the bigger picture with context. When combined appropriately these seemingly minor events and variations now paint a predictive picture that will inform what’s next.
Diversification is another term that follows closely behind conversations of bank failures or any turmoil in the financial markets, however, we know it’s not a full-proof solution to provide security without better information. By using trend analysis to watch specific investment markets and options, it creates decisions for what to diversify into and when, all backed by predictive data. These same methods could be used to apply to the clients and customers of a financial institution, as to keep diversity both on what’s invested in and generating revenue, and who is needing the money. This educated diversification of both investment and customer portfolios will only add more security to your bank.
Trend analysis could also greatly benefit regulators of the financial industry. Through the rigorous examination of patterns in data points, institutions are able to identify areas of risk that weren’t previously apparent. Not only does this enable proactive management of potential issues, it also allows banks and regulators to develop strategies for mitigating risk and unforeseen areas of exposure or weakness before it can affect their operations. By utilizing trend analysis for regulatory or business decisions, any business or regulatory agency in the financial industry can create a competitive edge through tracking market trends and responding with greater agility.
Utilizing data to predict both financial and non-financial problems is rapidly becoming a key strategy for preventing them. By utilizing algorithms designed to detect patterns in collected data indicative of developing financial issues, businesses can anticipate their financial situation before making important decisions. Knowing the current state of their finances, companies can then take steps to mitigate potential risks before they become insurmountable hurdles. With access to this kind of predictive analysis, companies are better equipped not only to avoid financial difficulties, but also make informed decisions that will improve their ability to thrive in the future.
However, this type of advanced predictive analytics requires financial institutions to have access to reliable data sources, trend expectancy models, and the appropriate infrastructure for interpretation and forecasting. Ultimately, trend analysis should be an invaluable tool for banks who want to be proactive in their prevention efforts against potential failures. Implementing this practice into daily operations is critical as it provides insight on how to mitigate potential risks and capitalize on profitable opportunities. In addition, it’s important to develop a culture that promotes data literacy among leadership and employees to ensure accurate understanding of how trends will inform or transform their organization’s performance. This can be a daunting task to accomplish without the right tools to support your organization. However, utilizing an advanced technologic platform, like Trendfire, the task becomes manageable with a partner in Nichefire. By following these best practices for implementing trend analysis in banks, organizations can become well-positioned for success during times of growth as well as uncertainty.
By using trend analysis, financial professionals can look at the performance of certain markets, economic indicators, accounting measures, and culture cues that could shed light on developing financial problems. Implementing data-driven practices can enable banks and regulators to anticipate unexpected events while planning for the future. Although this process may seem difficult, focusing on best practices such as embedding analytics into daily operations, managing data more efficiently, and leveraging resources like AI technologies can help strengthen an organization’s operations significantly. We all have a responsibility to maintain our financial health which is why investing in trend analysis solutions should be a priority. Want to continue the conversation or learn how we can help avoid financial downfalls using trend analysis? Get in touch with us today!
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