Banker To Banker

Bank Crowdfunding

Given the Alibaba-hysteria you might get the impression that in this market, everyone is an investor. Crowdfunding trends would only reinforce that notion. Crowdfunding is the concept that individuals, companies and investment organizations (funds, clubs, etc.) can invest or donate their funds in exchange for products, experiences, royalty streams, equity, debt or a combination of all of the above.

Internet of Things Risk Management

The “Internet of Things” is well on its way of changing how we move around the physical world, and 2014 marks the first time banks are starting to capitalize off this trend. Manufacturers are embedding sensors, tracking devices and actuators in various devices and linking them via the Internet. These devices form a network that not only churn out a steady stream of raw and analyzed data, but are able to be communicated with. The result is a “dynamic information layer” that adds value to any activity touching this network, including bank financing.

Leverage Ratio, Commercial Real Estate, Credit Risk

We are often asked what is the single best measure of lending risk?  Is it loan-to-value ratio?  Is it interest-coverage ratio?  Is it debt-service-coverage ratio?  Is it liquidity ratio?  While there is no single measure that can be used and each of these measures are important in various underwriting circumstances, if we were stranded on a deserted island and could only bring one tool to measure our underwriting risk, it would be debt-to-cash flow ratio (this is typically called the “leverage ratio”).  The leverage ratio is the measure of the borrower’s debt divided by t

SBA Lending

There is an argument to be made that a bank should underwrite every 7(a) SBA loan that comes its way. With a 75% guarantee and an average 10% premium net of cost and operational risk, that imputes a 30% cumulative probability of default. That is, as long as the bank thinks that there is a 70% chance of repayment, the bank should make that loan. This leaves a whole lot of room for error. Even if you underwrote nothing but one of the riskiest of major sectors, restaurant franchises, you would still be OK as their historic cumulative default rate is approximately 28%.

On this National Day of Service and Remembrance, we honor the 2,977 killed in the 2001 September 11 attacks and public service workers everywhere.

Yesterday’s big Apple reveal had bankers and pundits talking across the country. Most analysts got it wrong about “revolutionizing payments” and got it further wrong regarding what it means to banks. The iPhone6 (and iPhone6 Plus lumped together for the sake of this article) and the Apple Watch are truly evolutionary products.

Bank Customer Segmentation

“Check out our 1.15% CD” is probably the worst advertisement that a bank can do and unfortunately derivations of that approach are the most common form of advertising for banks. When our competitors promote generic advertisements around rate we love it, as it is a sign that the bank has not taken the time to understand their customer – ironic, since most banks pride themselves on knowing their customer.


For the academic banker among us. To summerize: 


  • The Fed needs to move carefully
  • QE can mitigate the negative impact of financial/credit shocks on GDP in the short run if it is aggressive enough
  • There is an optimal timing to exit with respect to maximizing the mitigating effect of QE (around 35 - 40 periods)
  • An unanticipated exit works better than an anticipated exit
  • An one-time exit is likely to work better than a gradual exit provided the timing of the exit is not too early compared with the optimal timing


C&I Loans, Bank Lending

For non-investment grade C&I debt, such as the debt found in our National-to-Local C&I program, the current default rate for the whole sector has dropped to 0.44% in August as calculated by S&P. This excludes a default earlier in the year by Energy Future Holdings (EFH) which ran into problems during the downturn and has used several tactics to delay a bankruptcy. As a result, we exclude them from the analysis as it does not reflect current conditions.


Cross-sell and Up-Selling

U.S. airlines carried more than 743 million passengers last year to cover some 840 billion miles during which time they fed an estimated total of 12 bags of peanuts and 7 bags of pretzels. We are not against paying for food, but let’s have something more than Pringles and $12 boxes of assorted travel sized food items that we are certain are leftovers from Jetro Cash & Carry.