Balance sheet management is increasingly viewed by banks as a key factor for growth rather than just a compliance task. Recent events, such as the spring 2023 bank failures, have shown that ignoring risk management can have severe consequences for financial institutions. However, some banks are demonstrating that strong balance sheet management not only helps avoid crises but also creates opportunities for strategic expansion and innovation.

"Strong balance sheet management isn’t just about checking regulatory boxes – it's a strategic engine for growth. When executed well, it empowers banks to confidently scale, weather volatility, and invest in innovation. When neglected? The consequences can be devastating. The spring 2023 bank failures are a case in point, reminding us all that ignoring risk is not an option," the release states.

A comprehensive approach to risk is central to this strategy. Banks are encouraged to address four main types of risk: credit, market, liquidity, and operational. Effective frameworks allow institutions to understand and manage these risks in line with their specific growth strategies.

"Every bank faces the classic risk quartet: credit, market, liquidity, and operational. The key isn’t to avoid these risks – it's to understand, price, and manage them in a way that aligns with your bank’s growth strategy," according to the release.

For credit risk management, accurate Funds Transfer Pricing (FTP) systems help allocate costs more effectively across business units. Proper provisioning and reserves ensure resilience against defaults without constraining growth due to over-reserving—an issue made more prominent by recent changes in global credit loss accounting standards.

Market risk is managed through asset-liability alignment and diversified hedging strategies using financial derivatives like interest rate swaps and options. Changes in accounting standards now permit portfolio-level hedging approaches that help protect income while managing exposure.

Liquidity risk requires diversification of funding sources beyond reliance on single channels such as retail deposits or wholesale funding. This provides flexibility for future initiatives as banks expand into new areas or markets.

Operational risks are addressed by investing in technology infrastructure and strengthening internal controls—a need that grows as banks increase their scale and face greater scrutiny from regulators.

Maintaining adequate capital ratios remains critical for both regulatory compliance and supporting new ventures. Regular stress testing allows banks to evaluate their ability to withstand adverse economic scenarios before they occur.

Scenario analysis plays an important role throughout these processes by helping banks test how different risks would affect their balance sheets under various economic conditions. This forward-looking perspective enables better decision-making around where—and how—to pursue further growth opportunities.

"The real value lies in how scenario analysis sharpens decision-making. Without understanding how credit risk, ALM, and liquidity might behave under multiple conditions, a bank could limit its growth – or take on more risk than necessary," the statement continues.

With robust balance sheet practices in place, banks can safely expand into new markets or product lines and invest in technological innovations like digital transformation or artificial intelligence (AI). AI tools can personalize services and drive data-based decisions if implemented within strong governance frameworks.

"Balance sheet management is the foundation of smart banking. When done right, it not only helps banks meet regulatory requirements and manage risk – it becomes a springboard for growth...The true power of balance sheet management lies in its ability to do more than prevent crisis. It helps banks lead – proactively, confidently, and strategically – in a highly competitive market," concludes the release.