Given the events over the past year in the financial services industry, it is clear that senior managers (as well as equity and debt investors in financial institutions) need a clear understanding of the financial management needs of these enterprises. The credit crisis that began in 2007 has brought to the forefront capital and balance sheet management, funding and liquidity, and risk management. Given the diversity of financial institutions, there is no “one size fits all” approach. However, sound financial management will allow
senior managers the ability to successfully lead any financial institution both through normal time periods and times of stress. In addition, nearly every major US financial services firm that has survived the recent crisis is a bank holding company, or has converted into one. This class is also applicable to financial institution (FIG) investment bankers, consultants, research analysts, and investors in financial institutions. As we have seen over the past year, the ability to understand and quantify a financial institution’s ability to survive during great periods of turmoil is of utmost importance. Adequate capitalization and liquidity are as important (and currently more important) than earnings
growth in determining the true value of a financial institution.
Anthony Rose was a Columbia Business School faculty member from 2009 to 2013.