Earlier this week we ran an article on the Price of Attention for Bank Marketing (HERE) and we were inundated with questions about how to pull some of these techniques off. Many bankers wanted to know where to begin with the most common question being - how to apply the “campaign portfolio technique” to something as crucial as loans or deposits?
Tag: Deposit Management
In our series of using machine learning on deposit management, one lesson that we picked up is how to segment a market to gather the deposits and the customers that best fit your bank. As we pointed out in previous articles, one problem with our industry is the “lazy carpenter syndrome” which is derived from the old adage that when you have a hammer, everything looks like a nail. For bankers, most potential deposit customers are viewed only through the lens of rate.
As deposits become more valuable, banks are getting more aggressive about raising funds. While we are not big fans of increasing liabilities through certificates of deposits (CDs), banks that do may want to consider requiring a checking account in order to increase performance. In this article, we look at some banks that do just that and how it helps them mitigate the performance degradation that normally occurs when offering higher-priced CDs.
Offering a Package of Products
At a recent Community Bankers of Georgia convention, a late night argument ensued over which banks are going to present the biggest deposit challenges for the next year. Now, granted you have to be a banking geek to really care about this on a Friday night, but it is an interesting question as the answer could help your bank more effectively defend its deposit franchise. In this analysis, we turn to the data to construct a “Deposit Threat Score” to hopefully provide your bank with insight into what your deposit future could hold.
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.
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.
Banks have smartly used the low rates of the last ten years to restructure their liabilities so that they are much less interest rate sensitive than they were during the last tightening cycle. The fear is that as we face the next tightening cycle, banks will relax and give themselves carte blanche to add more time deposits. This happens every rate cycle, and in this article, we review what happened during the last cycle and point out ways that banks can avoid becoming more interest rate sensitive.
It was the famous England vs. France chess match back in 1834, where the French opened with a simple, yet potent attack. England came out moving a pawn to the center of the board. The French stopped the pawn’s advanced and then used the combination of their bishop, rook, and knights to counterattack England’s exposed players. The set of moves have become known as the “French Defense” or “The French” and is one of the most popular opening moves in chess.
If there is a homogenous product in banking, it is the checking account. For example, most every bank out there charges a monthly fee for their retail and commercial business accounts.
If you handle deposits or look to issue a certificates of deposit special in the near-term, then you should read this because most banks get their callable certificates of deposit (CD) valuation completely wrong and, as a result, underutilize the product to help lower the funding cost of the bank. For the record, we are not advocates of any CD that markets on rate, as a majority of time a customer’s predilection for rate is highly correlated to low or negative lifetime value.