Deposits: The value of volume

No matter the market, a bank today likely has competitors offering 5.5 percent on a certificate of deposit. With competitors pushing the pricing envelope, leaders certainly may wonder: Will high cost of funds become a threat to return on assets? [Continue]

How term deposits can reclaim their crown

If bankers could choose a funding portfolio made up of deposits committed for a time, or deposits that could leave at any time, they’d choose the former. But, looking at the industry’s deposit composition during the last 30 years, it appears just the opposite. If our asset-liability logic says banks would generally prefer term deposits, what dethroned the CD? Bankers already know the common answers: Interest rates and/or depositor preference. [Continue]

Oversized deposit spreads aren’t compensating for undersized volumes

Executives who focus single-mindedly on cost of funds have missed the exit ramp, and it does not bode well for their organizations. With some art and some science, banks can de-commoditize deposits by segmenting deposit offers in more robust and differentiated ways than those deployed decades ago. Improved sales processes — and training for frontline staff that has not been imperative since 2009 —  can differentiate a bank and bring in profitable funding, though higher-priced, without the detrimental impact of repricing the entire book with across-the-board rate increases. [Continue]

Understanding deposit pricing stats

In times of volatility, it is critical to know how to interpret aggregated cost of funds data and correctly understand the pricing marketplace today. You may be familiar with Mark Twain’s opinion of statistics — “There are three kinds of lies: Lies, damned lies and statistics.” [Continue]

Deposit interest expense in the era of open banking

Are bankers prepared for rising interest rates causing an accelerated fluidity of funds flow? Bankers who buy in to open banking will find that it could be antithetical to their objectives to hold the line on cost of funds as interest rates rise. [Continue]

Delayed gratification and the future of interest rates

We are taught in business school that interest rates are the expression of the time value of money. Time value of money ultimately boils down to “delayed gratification.” The lower the interest rate, the more we are comfortable delaying gratification in using our money for goods and services for ourselves. To be willing to delay the use of their money, people ask for interest to allow others to utilize their money until a later time. So, in 2021 when we experienced the lowest interest rates in modern financial history, does this sync with our society’s expanding patience for delayed gratification reaching new record highs? [Continue]

In a rates-up environment, keeping deposits a challenge

The day will inevitably come when your customer will visit the bank asking for a higher rate on their certificates of deposit. As one of the largest single sources of sustainable deposits, managing a CD portfolio has long created a dilemma for bankers [Continue]