Tag: Liabilities

Playing Defense Against Deposit Competitors

Fighting Deposit Competition

In a recent article we published on Where Your Deposit Balances Are Going, we might have underplayed the looming competition for deposits particularly from money market mutual funds (MMF) and online-only banks. Our article failed to highlight an important signal that has only been present since April of this year. As such, our use of second-quarter data, in retrospect, didn’t adequately capture the risk that many community banks are and will be facing.

The Biggest Mistake When Pricing Deposits

Better Deposit Pricing

Many banks work hard to have a low-cost deposit base only to undermine their efforts. One of the biggest mistakes banks make is to advertise an above market rate thereby not only shortening deposit duration and increasing negative convexity for that one account, but for the whole product offering.

The Disaster Banking Account

Disaster Banking Account Product Design

For banks looking to help their communities plus expand their relationship with their local county municipality, the Disaster Account Set (DAS) is an underutilized product with a strong and growing need. For any given disaster, be it a hurricane, earthquake, tornado or other event that displaces a material section of the population, there is an outpouring of support and donations. The problem is that most counties are not set up to be able to handle incoming payments or make outgoing disbursements for a disaster-specific purpose.

What Chase Did Here To Gather Profitable Customers Was Smart

Bank Deposit Promotion

It is a testament to your marketing when your bank’s promotion is traded in the secondary market. Chase is currently offering a $200 bonus when you open a savings account with $15,000 or more (for 90 days minimum) of money not already at the bank. 

While a $200 cash bonus for a new account is on the high side of deposit account cash promotions, it is not unheard of. What is different is that Chase correctly chose to do this with a targeted mailed coupon instead of an open offer, as most banks would have done.

 

How to Make Sure Your Liability Duration is Real

Liability management

Many banks have their certificates of deposits modeled on their asset-liability systems without optionality. That is, they treat the final maturity as gospel with little weight given towards repayment.  This could be a mistake, as just assuming the forward curve is accurate, CD’s are set to exhibit about a 20% shorter duration than modeled. In a rising rate environment, banks are short the option value of a CD and thus are exposed to a market loss in the form of opportunity cost should the investor redeem early.

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