Plansmith Blog

Community Bankers: Basel III, Confucius and Tom Hanks

Posted by Shawna Brauer on 5/11/15 12:00 PM
Much like you, over the last couple of years I have spent a lot of time trying to get a handle on the impact of Basel III. I have spent countless hours attending webinars, reviewing Basel III drafts, running numbers, and figuring out how we should accommodate those changing needs within our software. During this process, I’ve found myself continually thinking about the following quote:

"Life is really simple, but we insist on making it complicated." - Confucius

And now – finally  the March 31, 2015 Call Report submission is in our rear-view mirror. You have logged many hours categorizing, computing and evaluating. The math is complete, and it is time to step back and understand the implications of not only where you stand today, but more importantly where you are headed and what you can do to impact that momentum.

Where we are today in the Basel III life-cycle reminds me of the 1988 movie "Big" starring Tom Hanks. In the movie, Hanks, who is a child trapped in an adult’s body, is in a high-level strategy meeting at the toy company he works for. The executives are discussing a new toy - a robot that transforms into a building. Everyone loves the new prototype, but Hanks is the dissenter in the group. With a child-like innocence, he asks the loaded question "I don’t get it. What’s fun about a robot that turns into a building?" With that simple question, Hanks naively reminds the group that they are caught up in the moment and focusing on what is right in front of them (a shiny new toy), and not on whether this item will satisfy their future goals (product sales). It is time for us to step back from the math of computing Basel III ratios and think along those same lines: we have shiny new and revised reports and ratios. But what do they mean? What are the positive and negative implications? What do they say about where we’re headed? Does that satisfy our future goals? If not, what should we do?

At Plansmith, we take a cue from Confucius as our motto is "Simplifying Complexity". That extends to the Basel III features we have built into our models. The hard math that you have already done is the foundation. So now let’s build on that and focus more on the strategy that will get you where you want to be in the future. Run different strategies through the model to see the impact. Test different promotions or pricing options. Review different theories. Seeing the impact of complex strategies within the model is really quite simple – use it to your advantage.

"Knowledge is a process of piling up facts; wisdom lies in their simplification." - Martin H. Fischer. The foundation is laid; let’s work on gaining some wisdom from our experiences. Let’s simplify the complexity.

If you belong to a community bank that uses Plansmith Compass or GPS models, please know that we always appreciate feedback on what works well, and where we can improve. Much like you, we are continually reviewing where we are today, how we’re meeting the needs of our customers, and how we can evolve to meet future needs. We don’t want to build a robot that turns into a building that no-one wants to play with. We’d rather tag along with Tom Hanks and Robert Loggia as they play on the giant piano in FAO Schwartz.

Topics: community bank forecasting, community bank, community bank strategy, community bank budget, forecasting, community bank budget software, community bank budgeting, bank budget, fintech