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Perspective on issues and trends in the financial institutions industry

In the aftermath of the subprime and credit crises, financial institutions of all sizes are asking the same question: Now what? The majority of bank executives are bracing themselves for a challenging year ahead. In fact, pessimism about the economy was the highest in the history of Grant Thornton’s 15th Bank Executive Survey. Although many executives reported their institutions as having no specific exposure to subprime loans, the aftershocks are now impacting the valuations of assets held by many of these institutions. However, they do not have to wait until the dust settles to begin the cleanup. In fact, addressing the challenges of the climate today can help position financial institutions for growth tomorrow.

The subprime loan crisis had a domino effect on the financial services industry. The falling real estate market and softening of the market for mortgagebacked securities has led to a tightening of credit and liquidity issues for many entities, which has in turn created problems for municipal insurance companies and holders of auction-rate securities. What are your company and audit committee doing to reduce your risk of the next unknown market crisis? Many institutions are responding by fixing the original problem and tightening underwriting and ensuring they have adequate capital. Nearly half of the survey’s respondents have already begun tightening underwriting standards and another 35 percent plan to this year. Executives would benefit from a hard look at underwriting policies.

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