Bank CFO looks ahead to interest rate hikes and AI bots

Echoing comments he and his peers made the day before at a CFO panel in Las Vegas, Douglas Schosser, CFO of Ohio-based Northwest Bank, told CFO Brew that one of the biggest challenges he’s facing is “the level of uncertainty” surrounding macroeconomic events and the “velocity of change” in technology.

Of course, banking is a slightly different animal when you talk about both economic risks and technology. For one, the whole profit model depends on managing interest-rate risk, especially at a $17 billion asset financial services company like Northwest with “a large balance sheet that’s got both variable-rate and fixed rate instruments.”

Second, since banking is highly regulated, financial institutions have to figure how to leverage AI without running afoul of US regulations on data access and governance controls, risks arising from third-party vendors’ use of the technology, and much more.

We asked Schosser how a regional US bank like Northwest is doing on those two fronts.

This interview has been edited for length and clarity.

What are the biggest challenges you’re navigating as a CFO?

It’s not all that unique, but right now it is, generally speaking, navigating all of the changes in the economy…So the level of uncertainty continues to be high. We’re still dealing with the war in Iran, so that also [everyone] had hoped would have been done by now…And then on top of that, you have all of the changes that are coming on with technology and everything else, which is kind of the constant evolutionary path.

How are you looking at the Fed’s potential rate hikes as the CFO of a financial institution?

At Northwest, we’ve kept ourselves slightly asset sensitive, really almost neutral, I would say, because we’re not really sure what’s going to happen. At this point, it kind of makes sense in my mind to be in a neutral position to just let things kind of roll through. The nice thing is the interest rate paths haven’t taken wild swings. All banks had lots of trouble dealing with all of the hikes that happened in [2022–2023], where they happened so quickly and [at] such an extreme going from 0% to 5%. These are a lot more measured, so they’re a lot easier to sort of deal with. But still, last quarter we saw a lot of loan growth across the industry [and] we didn’t see a lot of deposit growth. I think most bank CFOs right now are waiting for the other shoe to drop, which might be heating up in deposit competition. A rate increase also drives up deposit rate prices potentially. So [there are] lots of things to evaluate and think about.

How has your role as CFO changed due to technology?

Probably five to seven years ago, I think finance people had to get a lot more involved in technology spending…So really, finance had to kind of take a dual role of saying: One, I just need to understand what we’re doing from the technology space because it creates risk and it creates opportunity, which is the general remit of the CFOs as they become more strategic partners. And then secondarily, we actually need better software internally to handle the expectations that our external auditors have [and] our regulatory partners have. So we became both a purchaser of technology and an advisor to the business on how we’re thinking about technology.

As a CFO, how have you been thinking about using AI?

I look back to the robotics process automation revolution that we had…The problem was, you were basically trading one set of problems for another. At this point, that was all great unless any process upstream changed. If there was one thing that was different, the technology wasn’t smart enough to adapt. So then you had to put more resources into managing the bots as opposed to building the bots.

I think AI is a lot like that right now. Everybody wants to sell you an AI solution. I’m a little worried, potentially, that you’re going to have agents fighting agents at some point or another, like two [agents] trying to do separate things and then coming up with different answers. I think the fact that we’ve been through a couple of technology waves where we’ve seen that happen helps the company…do a better job of [being] really thoughtful about the strategy piece before we just go and make the investments, because I think before, we’ve seen us make the investments first and then look for the payoff later.