Correspondent Blog

Last week we highlighted the lessons that machine learning taught us about the Unified Deposit Formula (HERE). Embodied in the Unified Deposit Formula is a marketing and amplification equation. In this article, we expand on the lessons we learned from artificial intelligence regarding raising deposits and explore how we can better use the Formula, and…

If you are looking for insight into how artificial intelligence can help in banking, we give you the Unified Deposit Formula that can be used for raising deposits. Before using machine learning, we, like most bankers, thought about deposit pricing along a single dimension – price and sensitivity. However, it turns out that price and…

The art and science of optimized deposit gathering is a declining skill set among bankers. Banking schools don’t teach it, conferences don’t showcase it, and internal bank educators no longer train in the discipline. It is ironic as no other banking endeavor can build long-term franchise value like deposit gathering. Further, deposit gathering and its…

Many banks work hard to have a low-cost deposit base only to undermine their efforts. One of the biggest mistakes bank make when pricing deposits is advertising an above-market rate, thereby shortening deposit duration and increasing negative convexity for that one account and the whole product offering. This subtle distinction might be lost on many…

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 advance and used the combination of their bishop, rook, and knights to counterattack England’s exposed players….

A couple of weeks ago, we delved into the origination and operating costs of manufacturing commercial loans (HERE). In this article, we delve into deposit profitability and highlight the cost structure of deposits. The goal here is to give bankers that don’t utilize a funds transfer pricing and activity analysis methodology a glimpse into the…

The banking industry’s cost of funds (COF) is highly correlated to short-term interest rates.  However, as of Q2/22, the average community bank’s COF has risen only a few basis points.  Community banks should be concerned about their COF because looking at current deposit conditions is like driving a car while looking at the rearview mirror….