Correspondent Blog

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…

While banking returned to some semblance of normal, many banks continued under short-selling pressure. In this article, we recap the latest data on deposits and banking in order to give you an updated picture. Deposit Balances The Fed’s H.8 report, published last Friday, provides an interesting snapshot of the banking system’s assets and liabilities through…

In the quest for deposits, one successful tactic at top-performing banks is to target the right types of customers. While desiring to bank everyone in your community is noble, it can be a poor use of resources. Some customers offer better returns because they use more banking services and have more deposit balances. Not to…

In a recent article (here), we discussed why banks that take risks to earn higher revenue demonstrate lower performance as measured by ROA.   Empirical evidence, historical bank failures, and common sense teach us that many risks do not translate to higher yields.  While in that blog, we specifically considered the risk-return tradeoff for credit risk;…

You have undoubtedly heard or seen the various commercials and likely have even received phone calls about Employee Retention Credit, or ERC. The need for a known, reliable brand creates an excellent opportunity for community banks to help small business customers while building deposit balances. We introduced our ERC Assist program several months ago so…

Most bankers are familiar with the concept of risk-return tradeoff, which states that potential return rises with an increase in risk.  Low-risk assets pay lower potential returns, whereas high-risk assets pay higher potential returns.  Further, some bankers are taught early in their careers that they are in the business of taking risks, and banks would…