Correspondent Blog

Last week (HERE), we looked at how deposit account tiering is used, some of the objectives that banks might employ, and the effectiveness of tiering in total. As discussed last week, many banks tier without objective, without data, and without supportive marketing, thus rendering the methodology worthless and possibly hurtful. We challenged several commonly held…

In the wake of regional bank failures, one potential answer to equity shorting and bank runs is having the FDIC increase deposit insurance.  The regulators are considering three options: raising the limit above $250k, raising the cap for only certain accounts (such as banks’ business accounts), or eliminating the cap entirely.  Increasing insurance coverage on…

Adjusting pricing for deposit tiering according to account size is essentially a tradition in banking. A typical bank’s money market accounts often have six tiers ranging from $2,000 to $100,000. The question that always comes up is whether you have suitable tiers and the correct number of tiers. Are you using your tiers to drive…

Last week, we published an article [here] discussing how fair value accounting for assets and liabilities may have prevented the failure of Silicon Valley Bank, even if sound risk mitigation practices were not resolutely embraced by management.  We argued that valuing assets at historical value or measuring net interest margin (NIM) is not only a…

Just when you were getting your bank’s head around how you will operationalize ChatGPT (our breakdown HERE), AutoGPT, an application built on top of ChatGPT, gets released and takes the technology to a new level. We have played with this “AI agent” for the past two weeks and can report that it will be a…

Analysts, regulators, legislators, and bankers have been attributing the root cause of SVB’s failure in the past month.  Some blame the dilution of the Dodd-Frank provisions, others the lack of oversight by regulators, and others still blame social media for exacerbating the deposit run.  The root cause of Silicon Valley Bank’s (SVB) failure is poor…

Focusing on uninsured deposit performance is a hot topic among investors, analysts, and regulators. The concern is grounded in data as higher balance accounts are more interest rate and risk-sensitive than lower balance accounts. While every bank is now tracking the general metric, only a few banks monitor deposit performance in the category. That is…

In recent articles (here and here and here), we discussed why banks that take risks to earn higher revenue demonstrate lower performance as measured by return on assets (ROA). Empirical evidence, historical bank failures, and common sense teach us that many risks do not translate to higher yields. We analyzed why pay-for-risk does not lead…

The current banking crisis has put a magnifying lens on all non-Too-Big-Too-Fail banks. While the market focuses on deposits and liquidity, media pundits and analysts are waiting for credit problems to appear. Of all the credit risks within banks, one of the largest is in commercial real estate exposure. When CRE credit risk arises, it…

Fair value accounting measures assets and liabilities at current market value instead of historical or amortized value.  Most agree that attempt to fair value certain financial instruments would still not approximate the settlement of that instrument between a motivated buyer and seller – for example, there are many unpredictable or unknown factors to be able…

Banking has now arrived at a speed that it cannot handle. While there have always been problems in banks’ asset-liability models (ALM) and liquidity stress test models, the current environment exacerbates this problem. Recent bank failures hurting public perceptions, the current market trends of higher rates, Quantitative Tightening, digital banking, social media, and a flight…

In recent articles (here and here), we discussed why banks that take the interest rate movement risk demonstrate lower performance as measured by return on assets (ROA). Empirical evidence, historical bank failures, and common sense teach us that many risks do not translate to higher yields. The second article compared and contrasted community banks’ pay-for-risk…