Evaluate your client company’s contingency plan

Read your client company’s response, see whether it is consistent with lessons we learned in chapter seven and whether you can improve it by applying this week’s lessons. Elaborate at least in 200 words and cite the lessons from the Best Practices 7 assignment.

Bank of New Hampshire’s contingency plan is very interesting since banks manage their companies through recessions using the Capital Adequacy Ratio(CAR). CAR ensures that the bank will have enough cushion to take the hit from losses before they are forced into liquidity. If the Bank of New Hampshire needs to lower the capital to lower the ratio I would suggest they start to cut costs this way the ratio will even out. But, the Bank will also be just fine if instead, they choose to raise cash to increase the denominator and improve the overall ratio. As you can see the goal is to be able to manipulate the ratio so that it stays around a certain percentage. During a recession, the first thing I would do if I were the Bank of New Hampshire would be to start collecting accounts receivable rapidly and tighten credit terms. I believe this is one of the first actions because I believe this will have some of the greatest effects on ensuring that the bank doesn't go into liquidation. Next, I would begin to freeze hiring and begin to evaluate whether layoffs are necessary.  This should be done since at this time increasing the size of the company should not be worried about. The main focus of the company at this time should be to ensure that lenders are fully appraised by conditions and that relationships with financial partners are maintained. Bank of New Hampshire should also be planning for the opportunities that arise because of the recession. One of these opportunities is to look to buy distressed competition. At this time many banks may be forced into bankruptcy due to poor management and bad contingency plans. If you can plan far enough in your head when other banks are in trouble it can be a great time to start purchasing their customers or hiring their talented employees at a fraction of the price. Allowing the Bank of New Hampshire to come out of the recession bigger and better than ever. 


Business response to the questionnaire

Graponne

Question Response from the company
Please, discuss your contingency plan for dealing with recession, if you have one.

Our contingency plan include:

  1. Tighter control of our inventory levels
  2. Managing our cash. Making sure we have enough liquid reserves to get us through the downturn
  3. Limiting discretionary expenses. Including delaying intensive capital type projects.
  4. Keeping our team members fully engaged
  5. Making sure we have available credit (to finance cars that are not selling as well as lines to draw down for working capital). 

Bank of New Hampshire

Question Response from the company
Please, discuss your contingency plan for dealing with recession, if you have one. As previously mentioned, we build loan loss reserves and carefully monitor for signs of economic stress that may impact our business. We have sources of emergency liquidity available, and other similar tools to ensure the viability of the bank through a very severe downturn. Furthermore, we stress test our loan portfolios and entire balance sheet to determine how the bank would perform in various economic scenarios. This allows us to determine is additional reserves, liquidity, etc. are needed.

Comptus

Question Response from the company
Please, discuss your contingency plan for dealing with recession, if you have one. We do not have a contingency plan for an extended recession.