Why Resilience Doesn’t Look Like You Think it Does in Banking and Finance
Credit where it’s due: recently, a Financial Times (FT) headline writer earned their pay with “How the Next Financial Crisis Starts.” A bold, ominous line, perfectly crafted to stir the imagination.
In my experience, the loudest risks bark louder than they bite. It’s the quiet, comfortable assumptions (the ones everyone nods along with) that have a nasty habit of blindsiding institutions. The illusion of control is persistent and enticing, but sometimes it's just that - an illusion. History books are replete with accounts of people punished for mistaking comfort for safety.
This month, I talk to Ethan Heisler, editor-in-chief of The Bank Treasury Newsletter, and someone whose CV has so many stellar names on it that one could parcel them out to 5 or 6 people and they’d all have a stellar CV! Ethan’s finance career began in a way only a reluctant cab driver with a philosophy degree could appreciate. He reflects that:
“Like all people who study philosophy in college, I started out as a cabdriver - a job that quickly taught me I never wanted to do it again. After a couple of sales jobs (because, honestly, what else are liberal arts majors good for in the business world?), I figured if I had to sell something, I might as well sell money. That’s how I ended up starting my Wall Street career in repo finance on the 'govie' desk at Dillon Read in 1981.”
[Snap! A summer job as a kitchen porter at the Connaught Hotel in London back in 1987 taught me that I must graduate with at least a First, so I didn’t have to do similar work for a living!]
After business school in 1988, Ethan went to work in the Bank Analysis department in Bank Supervision at the NY Fed and learned the art of bank credit analysis. He contributed to the Fed's policy recommendations on rules related to accounting and regulatory capital. When he was a managing director in corporate bond research at Citigroup, he was recognised by Institutional Investor as a leading analyst for U.S. banks and Yankee banks. (We have at least one similarity in our careers: I was on the gilt-edged market-making desk at ABN Amro Hoare Govett during 1992-1997, and also traded Gilt Repo when that market kicked off in January 1996. And that name, like Dillon Read, disappeared from the markets long ago 😁).
Mr Heisler is more than well-equipped to discuss the banking sector at any time, making him the ideal chap to look beyond that FT headline - which, in his view, reflects a collective craving for clarity in a world where true risks remain anything but clear.
“Crises,” Heisler says, “don’t start with clean, identifiable events. They start in the background. Slowly. Then, they happen all at once.”
He’s not in the business of predicting crises. Instead, he urges leaders to ask the more valuable question:
“What are we not seeing?”
Better questions, better decisions
Banking’s ‘constant unpleasantness’: Embracing the chaos
Banking is a grind, says Ethan. The stress, the uncertainty, and the shifting sands of regulation and markets never fully let go. It’s a career of managing ongoing imbalance and imperfect information, where resilience and judgement matter as much as numbers. The very essence of banking is maturity transformation, which creates a natural mismatch, a tension that can never be fully “solved.”
“Forget the idea of a perfectly balanced bank,” he reminds us.
Banking isn’t a neat, orderly world where everything adds up perfectly. It’s a profession where you won’t be the master of your fate. (Although some senior execs actually do kid themselves that they are!).
“In treasury, you often need to admit - the car I’m driving is really not that great. I’m not a master of my fate… I’m kind of stuck with my instincts.”
That’s not resignation; it’s realism. The best treasurers build resilience and make decisions (amid what can be chaos) without falling for the false promise of perfect answers.
The real risk is the illusion of control
Failures build quietly in environments where accountability is weak, curiosity is stifled, and critical signals go unnoticed. As Ethan puts it:
“Failures don’t usually come from broken systems. They stem from a lack of accountability and culture.”
When crises strike, Mr. Heisler argues, instinct often matters more than models. They tend to hit like an ambush, catching institutions off guard and forcing snap decisions in the fog of uncertainty.
“A crisis is when you suddenly realise you were wrong,” he says. “And all you want to do is get out of the room first.”
But excessive caution in the name of prudence may carry hidden risks of its own, especially in a world where crises and rebounds can both move faster than institutions are built to respond.
Case Study: When control fails
The collapse of SVB in 2023 illustrates one such chain reaction. Following tech slowdowns and crypto crashes in 2021 and rapid Fed hikes in 2022, the pressure built up and exposed flawed business models. By the time SVB tried to raise capital after selling bonds at a loss - on the same day Silvergate folded - the fuse was already lit. Ethan notes:
“It was a perfectly sensible idea, just announced on the worst day possible.”
The market moved faster than the models. And the regulatory rollback in 2018 that exempted SVB from stress tests? It wouldn’t have saved them.
“The CCAR’s severely adverse scenario would’ve been SVB’s best day, because all of its bond problems would’ve gone away.”
Signature Bank failed 36 hours after Silicon did, on a Sunday. “Can you imagine? It failed right in the middle of the NCAA playoffs and just before the Oscars!” Ethan chortles. Republic First Bank teetered for a month and a half before the bank failed shortly after, brought down by the fatal loss of its deposit franchise despite the fact that regulators had no reported issues with its liquidity management. The bank was unfortunately in the proverbial “wrong place at the wrong time.” The illusion of control - whether through outdated models, ignored governance issues, or blind spots in risk culture - is what truly causes institutions to fail.
Which brings us to stress testing.
Stress Testing: From ritual to real insight
Stress testing has become banking’s favourite ritual, an industry in itself (many are the number of consulting firm partners who’ve put their kids through private school on the back of it!). But some of the tests are out of step with reality. They’re designed for comfort, not discovery. Ethan poses a good question:
“It’s almost like disease detection that does not take into account any differentiators. How can you have a standardised stress test?”
He believes that the best stress testing should be tailored, perhaps AI-powered stress testing, that is built around your institution’s vulnerabilities. Think: AI helping treasurers by generating realistic financial scenarios and running complex models that would normally take years and teams of analysts working day and night to build manually. Ethan highlights Straterix, a company building individualised simulations. It spots patterns, simulates outcomes, and updates forecasts in real time, so treasurers can quickly see the impact of changing markets, rates, or regulations without guesswork or delays.
“Every institution has its own risk cloud. The vulnerabilities only show up in certain conditions, but when those conditions hit, the long tail risk suddenly gets a lot shorter.”
But beware AI hype. AI is a tool, and as always, the right question matters more.
“There’s nothing intelligent about AI. It’s just a machine with a label, you can be fooled by that label,” he says.
For treasury teams, AI can support younger analysts and free senior leaders for the human judgment calls that actually matter. Ethan is optimistic about the partnership:
“If I outfit junior analysts with AI, I give them exoskeletons.”
AI assists, experience guides
Leadership: The only real risk control
There is no substitute for visible, engaged leadership. The best managers don’t delegate risk, they own it. They talk to customers. They look past dashboards and find truth in conversation. Ethan’s view is:
“The best managers walk the floor. They talk to their teams and their customers. That’s how you catch problems before they become crises.”
In a crisis, the wrong leadership culture amplifies everything. That’s what Ethan observed in a major financial services conglomerate that collapsed from the impact of its own internal divisions, strategy-by-PowerPoint, and risk-blind growth. He suggests the warning signs included:
Fragmented integration after rapid acquisitions
CEOs with no actual banking experience, drifting on strategy
Performance-chasing via risk exposure
A middle layer of managers overwhelmed by bureaucracy and unclear on mission
Reform that came too late, or never
This may sound familiar! In The Principles of Banking, I wrote that such failures aren’t just about numbers or processes; they are about people and relationships:
“Like all corporate entities, banks are groupings of people, and character, personality, and culture play a big part in both success and failure…resistance to change or disagreement on the way forward is not (always) because of any lack of logic or technical merit in a solution, but because of conflicting vested interests and what is loosely termed ‘office politics.’ “This feature of managing a bank must be taken into account and worked around, but there is no textbook on this skill that the author is aware of. Ultimately, as in life itself, all that one could recommend is to be true to one’s self and maintain an objective, logical, impartial, and unemotional approach throughout. In the end, one is always free to set one’s own standards.” ——Choudhry, M., The Principles of Banking. 2nd ed., Wiley, p. 747.
Culture always wins over strategy, and logic alone rarely prevails in banking. The best leaders balance not just data and decisions but also dynamics. And, as Ethan reflects,
“Sometimes, your network is the only asset you leave with.”
In other words, when everything else falls apart, the connections and trust you’ve built may be the lifeline that matters.
Build connections and trust
The only certainty is uncertainty
The existential question every institution should ask itself:
“Are we still the best option for our customers?”
If not, your crisis may already be in motion; it just hasn’t gone viral yet. The real disruptors aren’t always loud. For instance, they might be fintechs offering basic services - lending, savings, and payments - better. Ethan notes;
“The canary in the mineshaft is this: for the last 15 years, more banks have merged out of existence than started.”
If your customers think a nonbank serves them better, the erosion is already happening. Perhaps quietly. Maybe permanently.
Ethan’s advice isn’t to eliminate risk. It’s to stop pretending you can. (I love that!).
“Never rest on your laurels. Be alive to what’s changing today.”
For smaller banks - regional and community institutions - this is also a moment of opportunity. With tech like AI and smart automation, they can punch above their weight more than ever.
“Depends on the size of the bank. But regional treasurers have more opportunity now than they’ve ever had.”
Banking professionals must stay engaged - with data, with people, and with discomfort. Ethan (who once installed a sump pump on a hill because even high ground floods nowadays) reminds us that systems break not from bad weather alone, but from pressure points that slowly build and are ignored.
“Crises happen in stages. The first shoe drops. And then the water rises.”
Banking isn’t about smooth rides. It’s about preparing for sharp turns, stalled engines, and storms that don’t appear on the radar.
If you want to deepen your institution’s resilience, start here:
“What are we not seeing?"
Going forward….
A guide for those seeking to understand both the art and science of modern finance: The Moorad Choudhry Anthology blends theory with practical tools, offering bankers, auditors, regulators, and aspiring leaders real-world templates and policy guidance to drive sustainable banking and effective financial decision-making.
“The Moorad Choudhry Anthology is an extremely thorough and readable book on asset–liability management and bank risk management. It covers such a wide spectrum of topics affecting a treasury and risk function that this is always the first resource I look into if I have to brush up my knowledge or look up something properly in any particular area. I find this book very authentic and relevant as it covers the latest issues in the market and is written by a practitioner who is very well regarded in the industry.” —Nehal Saghir Head of Asset and Liability Management, Mizuho Capital Markets (UK) Ltd, London
