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.

I would say that Bank of New Hampshire’s response in both week 7 and 8 are solid, and from what they say, it seems like they are prepared if a recession would happen. What matters to the banking industry is capital to asset ratio, which is (tier 1 capital + tier 2 capital) divided by risk weighted assets. Tier 1 capital is basically equity, and it is used to absorb losses and does not require a bank to cease operations. A good example of a bank’s tier one capital is its ordinary share capital. Tier two capital comprises retained earnings, reserves and general loss reserves, which Bank of New Hampshire are building, according to week 7 and 8. Tier two is used to absorb losses is a bank loses all of its tier one capital. Currently, the minimum ratio of capital to risk-weighted assets is 8%, which means that it is important to always have a high capital adequacy ratio to stay above these 8%. Maintaining a healthy capital to asset ratio can be done by cutting costs in order to raise earnings and cash. Businesses can also reduce assets to increase the capital adequacy ratio. Bank of New Hampshire are, as it says in week 7, conducting expense reviews to see where they can cut their costs, and they look to sell less profitable assets which will also increase the CAR. They also state in both week 7 and week 8 that they are doing tests to ensure that they are prepared in case of a recession or just an economic downturn. Overall I would say that Bank of New Hampshire has provided good responses for both weeks, and it is consistent with what we have learned from the textbook.

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.