Tag: Deposit Beta

10 Tactics To Dampen Deposit Betas

Lowering Deposit Costs

Cost of funding for community banks has risen notably, but the banking industry’s rising deposit betas is creating a greater challenge for community banks.  Deposit beta is the change in funding costs divided by the change in interest rates.  Rising deposit betas may require some community banks to change their focus on customers, products and ALM assumptions or risk a reduction in NIM and profitability. In this article, we highlight the current and projected state of deposit betas and then outline ten of the best tactics for dampening or even lowering the beta at your bank.

 

Why Passing On Deposit Assessment Fees Can Hurt Your Bank

Charging Deposit Assessment Fees

After the last recession, Dodd-Frank and the FDIC raised deposit fees which prompted many banks to start including an “FDIC Assessment Fee” in their deposit account charge. The FDIC issued guidance in 2012 that labeled the practice as misleading, so most of those banks just changed the name to a “Deposit Assessment Fee” and kept the practice. One full recovery, one drop in assessment rates by the FDIC and a tax reform change later, and many banks are still at the practice.

Control Loan Growth To Manage Deposit Cost

How loan growth impacts deposits

Many banks manage loan growth absent of other factors on the balance sheet. Historically, that has proven to be a mistake as strong loan growth often leads to a more rate sensitive bank. Many banks increase loan growth in a rising rate environment without regard to risk-adjusted loan return or deposit performance. While we often cover how to manage risk-adjusted loan return, in this article, we want to highlight the tradeoff between loan growth and deposit performance in hopes of giving bankers a better formula for high-performance.

 

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