Pub. 8 2018-2019 Issue 2

18 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S 1 T oday, you operate in an industry capturing, on av- erage, 450 bps less in return on equity than it did a decade ago. Can you afford to leave any money on the table? As a banker, youmake decisions of many kinds – credit, operational, marketing, and financial. In all of these areas, analyzing your options is important; suboptimal decisions can cost you money in expense, foregone earnings, or both. You can improve your decisions and capture better potential returns by adhering more closely to eight ana- lytical principles of sound financial decision-making. Multiple Scenarios are Required There is little value in at- tempting to predict the fu- ture – interest rates, credit cycle timing, political out- comes – for a very simple reason: we are no good at it. World-class economists cannot successfully pre- dict the 10-year Treasury rate six months from now, pollsters cannot predict election results, and you don’t know which of your borrowers is going to dis- appoint you. Yet, thinking about the future is critical. A loan or security yield represents a single scenario for the future. So does a loan classification. What if a different future actually occurs? Would all assets and liabilities experience that difference in the same way? The principle here is to consider multiple scenarios Are You Deciding to Make Less Money? BY PHIL NUSSBAUM AND ERIC BROWN, PERFORMANCE TRUST