You can slice and dice your credit portfolio all you want, but if you are not paying attention to cross-correlations your efforts could be sub-optimal. For example, many banks separate their multifamily exposure away from their single family exposure. In some markets, these two subsectors are almost 80% correlated. A drop in housing prices usually occurs at the same time as a drop in multifamily values and in similar fashion delinquencies at banks usually move in lock-step.
Banker To Banker
The long-run war for bank supremacy will be fought in many theaters. One of the largest battlefields will be on the pitch of treasury management with many banks in a geographical and customer segment area striving to capture that lucrative corporate customer. Banks going after medical professionals or homeowner associations, for example, already face intense competition. Competition is growing for other highly profitable customers such as hotels, car dealers, distribution companies, insurance companies and manufacturers.
Last month’s Consumer Financial Protection Bureau (CFPB) study combined with the Wells Fargo account opening fraud and Friday’s public letter from six senators will cause many banks to rethink arbitration clauses in their account documents. While banks argued for decades that arbitration clauses are a common commercial practice in the U.S. and benefit customers to settle conflict quickly and inexpensively than going to court, the CFPB is about to argue that it helps hide wrongdoing while denying fundamental legal rights.
There is many ways the current interest rate environment is impacting banks. The balance sheets of community banks, for instance, are very sensitive to short-term interest rates. Short-term rates drive the cost of funding, loan and securities yields.
We are not sure when the Federal Reserve is going to move, but if you play this game, they should do something quick because it is hard to keep the economy between the lines. Armchair FOMC members can now try their hand at a new online game called “Chair the Fed” where central bankers need to adjust the target Fed Funds rate to keep the due mandates of growth and inflation at target levels.
Of all the top performing banks, the one that we are most envious of and follow the most closely is Live Oak Bank. Chip Mahan and his team of high performers have reverse engineered the best parts of banking. The result is a radically altered business model that achieves performance through its simplicity – profitable products to profitable customers.
These days, if you want to make tough branch decisions, use a good college student instead of an experienced banker. We will come back to the college student but, in this post, we pitted experienced bankers against the latest branch models against the latest machine learning applications to see which method was more accurate at predicting branch performance. The answers will not only surprise you but what we learned along the way will help improve your thinking about branching, machine learning and the new paradigm of quantitative banking.
When designing products, choosing vendors or trying to solve usage challenges, understanding the importance of alerts and notifications is critical to success. Alerts are important now and will be even more essential for the modern banker to understand in the future as banking morphs into a collection of mobile apps and wearables.
We recently found ourselves 30 minutes early for a bank visit, so we googled the nearest coffee shop. A Starbucks and a privately owned shop called Kaleidoscope Café was within a five-minute drive. We drove to Kaleidoscope because we prefer to frequent local establishments and after we had parked we had to walk by Starbucks on our way to Kaleidoscope. Starbucks was crowded, and there was a long queue at the register. When we walked into Kaleidoscope, we noticed a substantial contrast. First, the space was larger, cleaner and brighter with more outside seating when compared to the compe