Correspondent Blog

Most market participants are focused on just one monetary policy tool available to the Fed – short-term, federal funds rates.  However, the other critical monetary instruments available to the Fed are quantitative easing and tightening (QE and QT, respectively).  While the Fed’s current actions on QT have been deemed long-term, slow-moving, and compared to watching…

If you want to grab a material amount of new deposit balance, offer a 5.05% money market rate, post it all over Instagram, and sit back and watch the money roll in. This approach has many problems, the first of which is a negative return on your investment (ROI). You will also end up cannibalizing…

If one product is the future of banking, it is treasury management. With a competitive offering, it will be easier to attract the small business and mid-sized companies that a bank needs to fuel its core growth. In this article, we detail the five steps to building a treasury management strategy, provide some tools to…

The bigger risk to community banks’ business model is not a moderate recession induced by aggressive interest rate increases by the Federal Reserve.  Instead, the more painful scenario for the banking industry is the following: no recession, short-term interest rates holding steady in anticipation of inflation reaching target rates, and a prolonged inverted yield curve….

Community bank cost of funds is jumping up. As shown in the graph below, the net interest margin (NIM) for community banks declined 22bps in Q1’23.  Most of that NIM erosion is the result of a sharply higher cost of funding earning assets (COF). The question is – what will happen to community bank’s cost…

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…

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…

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…

Rising funding costs and decreasing liquidity at community banks are causing managers to change pricing methodology for new credits. This makes some sense, as in other industries, if your input pricing goes up, you often adjust your end pricing.  We estimate that 25% to 50% of community banks have a policy requiring minimum yield or…

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….

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….

Based on the futures market, the Federal Reserve is expected to raise the Fed Funds rate to 3.00% at its December 2022 meeting. The Fed will also aggressively shrink its balance sheet to tame unwanted inflation. These two Fed moves, along with the economic environment and customer behavior will impact your forecasting of your cost…