Recent Articles and Publications

---

 It may be that decades from now, when people mention “the roaring 20s,” they won’t necessarily be talking about the 1920s.  

Banks are back in the CD business again.

Before 2023, few board meetings ended with a management directive to “get more time deposits.” But not so much anymore,  

It’s the final call for deposits at more than 4.75%. The Federal Reserve’s 50 basis point rate drop means happy hour on the highest interest rates in more than 15 years is nearly over. Every banking executive should consider now how deposit pricing will affect the organization’s brand. 

 Make the relationship real through engagement, and savers will reward institutions for the stress relieved. 

 It’s time for the secret weapon: Maximize margin and volume together. 

To achieve long-term success, promotional specials need to be part of a well-orchestrated system that empowers frontline staff and includes systematic approaches to negotiations and retention offers. 

 As brokered deposits reach never-before-seen levels at banks across the country, a flawed but mathematical line of reasoning now entices executives to abandon local deposit gathering in favor of no-relationship funding 

The cost of brokered deposits and FHLB advances in 2022 relative to internally sourced deposits has upended the casual approach some financial institutions have taken to outsourcing their funding. While as an industry we have never been over 12% of assets funded by this combination of outsourced funding

 When financial institutions want to raise deposits or prevent attrition, they often turn to tactics they have used before without assessing them strategically based on current market conditions. No tactic is 'bad' in and of itself. But most have aspects that can become problematic, depending on the circumstances. Here's what to consider when weighing your deposit-raising options. 

 Banks create value by combining features that tailor a financial fit between depositor and bank. That value creates differentiation and drives volume. 

 Imagine if people could buy the same product from their bank that they now buy from the US Treasury by the trillions. No more dealing with the “amazing” customer service of the federal government, no more moving money back and forth, and all of it managed within the bank’s convenient mobile app.   

It is tempting to believe that a low cost of funding is synonymous with success. Banks must constrain cost, but it’s not sufficient to achieve maximum profitability. The highest performing institutions achieve both funding volume and spread.   

As deposit volumes clearly begin to favor higher rates, credit unions must develop their ability to negotiate with depositors to a mutually beneficial outcome. 

 Nothing in financial institutions' income statements will increase more this year on a percentage basis than interest expenses. Success is heavily dependent on a coherent, effective and efficient pricing strategy that achieves an oversized portfolio simultaneously with an oversized margin  

To avoid repricing deposits at higher rates, banks and credit unions have attempted to simultaneously use "relationship pricing" and "new money only" offers to manage their book of funding. 

 In times of volatility, it is critical to know how to interpret aggregated cost of funds data and correctly understand the pricing marketplace today. 

 The deposit rate war is on. There will be those who excel at deepening customer relationships, and there will be those who suffer deposit runoff and precipitous increases in funding costs. 

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.  

 Banks are faced with two disparate pictures when they look at their cost of funds in 2022. Funding costs are not exploding, thus far anyway, from the highest performing banks on down. While consumers, on the other hand, are treated to more and better options for safety and higher yield with each passing month. 

Brick-and-mortar banks are unlikely to compete with online banks touting yields of 3% or higher on interest rate alone. But many consumers are interested in more than chasing high rates. 

 New kinds of savings accounts can give members with commitment to their relationship with the credit union both high yields and short terms on their deposits.

One community bank answers with an emphatic yes. It has retained rate-sensitive customers by deploying a system that consists of technology, new products and staff training. The big selling point for the products is flexibility rather than rate. 

 As depositors consider economic risks, and as significant Federal Reserve rate increases lure treasury managers to assess their returns, financial institutions must engage depositors with information and options, if they wish to fend off deposits pricing pressures that threaten profitability. 

Financial institutions holding off on paying higher rates on long-term savings accounts could end up in the crosshairs of aggressive deposit raiders.

Bank uses company's CoreCD software, consulting services to drive revenue and provide personalized customer experience for savings products-

Gauging the pressures on your bank's liquidity relative to your peers

If credit unions cannot win the war with price, how can they expect to win?

Four ways savings products could change in service to your members

 With banks still flooded with cash in the wake of the pandemic, many are waiting to raise deposit rates, content to watch some of their excess liquidity run off the balance sheet 

 As depositors consider economic risks, and as significant Federal Reserve rate increases lure treasury managers to assess their returns, financial institutions must engage depositors with information and options, if they wish to fend off deposits pricing pressures that threaten profitability. 

 Time deposits with daily redemption options stand to materially improve value for both depositors and financial institutions.

 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. 

The events of the first quarter of 2020 associated with the global pandemic clearly spotlight the importance of bankers having a thorough understanding of their liquidity position and managerial options. 

CoreCD® clients are benefiting from lower interest rates by aggressively dropping CD interest rates while buffering against withdrawals with Limited Edition Savings.

In response to the Fed’s surprise 50 basis-point rate cut – and huge moves in the bond market making wholesale funding dramatically less expensive 

The rush to be best rate frontline bankers can offer depositors is a dangerous process that can systematically bleed away significant profitability. 

 Financial marketers can learn from the oil industry's fracking revolution how to extract previously unreachable deposits where conventional marketing doesn't work. 

Assessing call report cost information with a Follow the Money approach greatly impacts the interpretation of the FDIC data. 

Bank asset/liability managers don't have the luxury of waiting for the markets to make sense. We must operate in the markets as they exist by always controlling the structures and pricing of our current offerings. 

The last time we saw the Fed cut rates, bankers experienced a surge in deposits and very low cost of funds. 

 Stock market conditions and uneasy murmurs about a recession pressure conservative consumers with lots of financial assets to look at increasing their holdings in insured deposits at funding-hungry banks and credit unions. 

The most talented football quarterbacks effectively utilize their skills to read the circumstances associated with each down, and they work through a designed play to produce a set of options intended to optimize the results of the situation.

What deposit strategies and tactics should banks be employing in a rising rates environment? And how can Uber's business model act as a guiding principal for banks seeking to attract and retain properly priced deposits? Neil Stanley, of The Corepoint and TS Banking Group, joins The Purposeful Bank podcast to answer those questions and more.

 The March 12, 2018 article by The Financial Brand, "How Banks and Credit Unions Can Survive Rising Interest Rates," brings attention to the struggles banks and credit unions have today with attracting and retaining long-term savings depositors. 

 The composition of banking industry funding has changed dramatically over the past 30 years. How will the dynamics of industry growth, digital technology, and interest rate changes impact bank financial performance? 

 When average doesn’t represent typical, and the regulations don’t allow discretion, adjustments are needed. 

 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. Most community banks fund between 10 percent and 40 percent of their balance sheet with time deposits. 

 Consumers have more than one kind of relationship with their finances, and banks that can learn to distinguish between the various types of emotions people bring to the multiple relationships they have with money will be better able to serve them. 

 With the Dec. 14 increase in the target Fed funds rate, the coming intersection of new levels of interest rates and today’s analytics generates options previously unseen in banking. 

 Clearly and consistently navigating the route to optimized future balance sheets and income statements is the responsibility of the Asset-Liability Management Committee. Effective ALCO meetings can be some of the most dynamic and participatory events in a bank when a practical, efficient, and effective process is used to create harmony and execution in optimizing ALCO loan and deposit pricing decisions. 

 Of all the chapters in life, let’s consider retirement. This may seem like a strange place to start a reflection on leadership, but that is precisely what Stephen Covey does in his book The 7 Habits of Highly Effective People.  

 Ms. Jones had her money safely invested in a deposit account at a special promotional rate. But when her institution (Bank A) was acquired by Bank B, the special promotional rate quickly surfaced as a market outlier. 

Despite dramatic declines in net interest margin-76 basis points from early 2010 to late 2015- not all banks are not accepting lower profitability as inevitable. 

Focusing on the right factors can lead to more opportunities. 

 Several times over the last year I’ve talked with banking services provider Neil Stanley about community banking strategy. He put some of his thoughts into an article that ran early this year just after the Federal Reserve began to raise rates, “Will ‘deposit atrophy’ strike your bank?” 

 Clearly and consistently navigating the route to optimized future balance sheets and income statements is the responsibility of a credit union’s asset/liability committee. ALCO meetings can be some of the most dynamic

 With the market anticipating higher interest rates, banks may find it increasingly difficult to get customers to accept longer-term deposit accounts. One way to overcome this reluctance is by offering them rate change features in their account. 

 When the marketplace anticipates higher interest rates, it can become increasingly difficult to get members to accept longer-term deposit accounts. At the exact same time, credit unions may be looking for ways to encourage more depositors to lock in for longer terms. 

 Designing deposit and loan products that stand out in the marketplace can encompass creative flair in pricing, especially now that there is a bit of play in the interest rate environment. 

 Many community banks are still clinging to outdated deposit-gathering strategies that are no longer adequate to support ramping-up lending initiatives and a rising interest rate environment, some bank management consultants say.  

 Rather than bidding up rates to attract and retain time deposits, CUs should consider enhanced ways to price and sel

As the likelihood of the Fed raising interest rates looms ever larger, it’s time for banks to consider the strategic implications of their time deposit funding portfolios, commonly referred to as certificates of deposit (CDs). 

 Banks that want to be more successful selling long-term deposit accounts need to properly prepare their front-line staff to engage with customers in a consultative manner.   

 Most bankers would acknowledge that the profitability among their customers varies significantly. It seems that every bank executive has been approached by some consultant claiming that 80% or more of the bank’s profits come from 20% or less of its customers. 

 Bankers have grown accustomed over past decades to a plentiful supply of low-cost time deposits from senior citizens that help to properly fund fixed-rate long-term loans. This need for seniors to invest conservatively is timeless. The specifics, however, of what kind of deposits the older generation will embrace is changing. 

 Today, your bank is issuing time deposits at rates significantly below what they were just a few years ago and renewing CDs at a lesser rate than they were just last term. So, what’s the goal? 

 An astonishing number of bankers (rookies and veterans alike) express the view that the forward implied yield is just another generally inaccurate method of predicting future interest rates.

Those who dismiss “forward implied yield” by citing its statistical inaccuracy for predicting the future of interest rates miss the most important point. 

 For good reasons most bankers esteem the importance of relationships. Unfortunately, many bankers casually transfer that esteem to “relationship pricing.”

We have come to realize that bankers must be more discerning in their decisions.

  We hear bankers today talking about “getting back to the basics.” That’s fine as a sound bite but what basics are they referencing and how far back are they suggesting we go?

Banking last went through a major transformation in the Great Depression of the 1930s when the newly created Federal Deposit Insurance Corp. 

 Bankers throughout the country are increasingly focused on both attracting properly-priced funds and creating more practical, customer-centric ways to retain quality deposits.  

 With loan growth on the mend in much of the U.S. and margins tight, reliable deposit strategies will once again take
center stage. Presented here is a simple, yet dynamic sales strategy, available to every financial institution, that can
help retain more of the quality deposits already on the books. 

 Bankers throughout the country are increasingly focused on both attracting properly-priced funds and creating more practical, customer-centric ways to retain quality deposits.  

 In an interesting technology advance, Microsoft said it will now allow users to sign onto their accounts using its Authenticator app and an Apple Watch. No password is needed and authentication can occur right from the person's wrist. 

 To combat attrition as interest rates rise, banking providers will need to explore new deposit growth strategies. Pairing a high rate with maximum flexibility in a bundled CD + savings account is a win-win, both for financial institutions and consumers. 

 If timing is everything, then score one for depositors.

The time is right for them to get what they’ve searched for: higher yields without commitment.   “Whoa, hold on now,” bankers respond to such suggestions.

Imagine if people could buy the same product from their bank that they now buy from the US Treasury by the trillions. No more dealing with the “amazing” customer service of the federal government, no more moving money back and forth, and all of it managed within the bank’s convenient mobile app.   

  Several metrics superficially indicate that deposit initiatives might no longer “move the needle” for financial institutions. The recent data presented below from www.fdic.gov is striking. We have recently experienced the greatest deposit growth in the history of insured deposits and the interest rates offered now on deposits are still near the lowest in history. 

 “If funds are withdrawn from a time deposit within six days of the date of deposit, an early withdrawal penalty of at least seven days’ simple interest on the amount withdrawn must be charged. An early withdrawal penalty must also be charged if part of the time deposit is withdrawn within six days of the most recent partial withdrawal.” 

 Traditional penalties on certificates of deposit represent sales blockers and often amount to meaningless threats. A fair-but-serious approach to these measures — introduced as rates slowly climb — may help differentiate your institution's term deposit offerings from competitors', and give you a leg up based on something besides just paying the highest interest rates in town. 

 According to classical economic theory, it is shocking to observe that during a time of relative economic stability, with record stock market levels and significantly robust real estate markets, long-term interest rates on U.S. Treasuries in 2019 have been lower than they were during the worst of the Great Recession. 

  How would you design a better CD? You can't design it to be better for just the depositor. It has to be a win-win for both the depositor and the bank. That's what Neil Stanley has been working on. In his article at Banking Strategies, From Commoditized to Customized Deposits, he describes ways CDs can be improved so that banks can attract and retain depositors. 

 Nebraska native Neil Stanley's invention might not be as visible as other great Cornhusker State innovations, such as Kool-
Aid or CliffsNotes.
But it is of great note nonetheless: The former bank executive is the owner of a valid 2013 U.S. patent for a new type of
certificate of deposit. 

 A small community bank in western Iowa has introduced a new type of certificate of deposit that sometimes rewards early withdrawal, and only penalizes them if interest rates rise. 

 A conventional bank CD investment is comprised of a federally insured CD with a contractual fixed rate to maturity.  Because there is a “substantial penalty for early withdrawal” any new decisions about managing this investment need to be deferred until maturity. 

 Time deposit owners always want the same thing: more yield and short commitment. But until recently depositors had little motivation to spend time and energy looking for options. Every choice was pretty discouraging due to the dominance of low rates.  

 When rates were lower than today, Betty researched yield and maturity combinations from a few sources and set up her account with the financial institution that was offering the best deal. Back then, Betty planned to wait to maturity before cashing out. 

 Time deposit owners always want the same thing – more yield and short commitment.  They search for yield and maturity combinations from the options they know about and then open up time accounts in their financial institution of choice. 

 With the Federal Reserve positioned to raise rates for the first time since June 2006, some generally unanticipated consequences are predictable. Even after material declines in volumes since the Great Recession, time deposits remain a significant $1.6 trillion component of FDIC-insured financial institution balance sheets. 

 Today’s financial institutions have dealt with a lot in recent years. They have been forced to prioritize urgent and strategically important issues--and now they must deal with how to prepare for a rising-rate environment.