Did you know that blue lobsters are the result of a genetic abnormality that causes them to produce too much of a specific protein that creates their unusual coloring? The chance of finding one of these extremely rare lobsters is one in 2MM. There are several other unusual variations of lobster that have even less likelihood of occurring in nature. For example, you have a one in 30MM chance of finding a yellow or calico lobster (orange with mottled black shells), and a one in 100MM chance of coming across an albino or crystal lobster (one with no color). Low probability and unpredictable events, also known as wild card events, can have significant, far-reaching, and long-term impacts on the financial system, banks, customers, and even society as we know it. We explore how community financial institutions (CFIs) can prepare for these events, ensuring they build resilience and retain their long-term sustainability. The Strategic Significance of Wild Card EventsWild card events can emerge abruptly, like a geopolitical crisis or cyberattack, or build gradually, for instance, the consequences of climate change or systemic financial imbalances. They often result from a complex web of various triggers, including physical (e.g. natural disasters or a pandemic), social (e.g. political upheavals or major policy changes), and technological (e.g. rapid innovation, technological leaps such as quantum computing or fusion energy, or failure of critical infrastructure). Irrespective of their triggers, all wild card events have the ability to expose vulnerabilities and disrupt established systems. Well-known examples include the fall of the Berlin Wall, 9/11, the 2008 financial crisis, the Covid-19 pandemic, the 2023 bank collapses, and the 2024 CrowdStrike software update. Given their diversity and significant systemic impact, these events all emphasize the need for CFIs to be able to better prepare for and manage potential future volatility. Preparing For the Unexpected Of course, planning for wild card events is less about prediction and more about building strategic flexibility and resilience so that an institution’s systems, governance, and decision-making processes are equipped to respond appropriately when the unexpected becomes reality.Failing to prepare for these types of events can leave CFIs vulnerable when it matters most. Here are five tips for CFIs to consider as part of their strategic planning to ensure they’re adequately prepared:
- Stay informed. Early detection of these events enables faster, more informed decision making. Not all wild cards happen abruptly; many begin with subtle changes. While some may seem distant future possibilities, it is important that CFIs prepare by staying abreast of what’s happening around the world. Monitoring global trends, economic anomalies, regulatory movements, and market shifts is key to an institution’s ability to anticipate potential disruptions and plan appropriate action. Technologies that leverage data analytics and real-time reporting can help provide insights to enable CFIs to respond to emerging risks as early as possible.
- Strengthen financial resilience. Financial flexibility can be a crucial shock absorber when the unexpected happens. Strong liquidity buffers, as well as diversified income sources and reduced exposure to any one sector, can help CFIs protect core services, stabilize operations, and even pursue emerging opportunities in the face of a wild card event.
- Implement a risk-responsive framework. While these events can’t necessarily be predicted, the potential consequences can be imagined. A robust risk management framework should map potential vulnerabilities and interdependencies across core systems, people, and third-party services. CFIs should increase the scope of potential threats considered, including “what-if” scenarios. They should then stress test the potential for overlapping disruptions, ripple effects, and cascading failures associated with various high-impact events. Clear contingency plans should be developed to mitigate the risks identified.
- Build operational resilience and adaptive capacity. Business continuity protocols that define tolerances for disruption — e.g. for how long critical services, systems, and operations can be down — are also key. CFIs should invest in infrastructure and technologies that help to identify potential disruptions and adapt to sudden changes. For example, building digital resilience through secure cloud systems, cybersecurity measures, and remote service capabilities can enable institutions to better maintain operations during times of disruption.
- Develop an open and agile culture. Governance structures, communication protocols, and training programs that support a culture that proactively anticipates change will also help a CFI to better manage a wild card event. Leadership teams should have pre-assigned crisis roles, be familiar with escalation protocols, and receive crisis-simulation training. What’s more, every member of staff should understand their responsibilities during a disruption so that they can act with confidence and clarity.
CFIs operate within increasingly complex, connected systems where a single failure — whether technical, operational, or geopolitical — can result in potentially disastrous ripple effects. By adopting an agile, forward-looking approach, having the right systems and structures in place, and embedding adaptability into their plans and culture, CFIs can build strategic resilience so they can better withstand shocks and wild card events.
