White Paper Cautions Banks on Threats to Deposit Base

PROFIT INSIGHT® released a new white paper focused on the risks banks are facing regarding their deposit base when customers move capital into more attractive options as rates rise.  Authored by PROFIT INSIGHT Senior Managing Director Tom Bennett, a banking expert with over 20 years of experience, the white paper is entitled, “Plan For a Rising Rate Environment” and is available on the company’s website at www.profitinsight.com.

According to the white paper, growing and shifting deposit mixes, along with the erosion of time deposits, are of increasing concern to banking executives across the United States.  Most deposit categories are at risk of attrition when rates rise, and every financial institution will face unique challenges in the coming months as their customers adapt to a changing environment.  The white paper explores how much banks stand to lose and how they can prepare for the road ahead as events affect checking, savings, money market and time deposits.

“The deposit mix is very different for the Top Ten banks versus other banks, particularly those with under $5 billion in assets,” says Bennett.  “In general, large banks tend to have lower loan-to-deposit ratios than smaller ones, meaning that attrition will not present funding challenges, but may impact their margins,” he explains in the white paper. “Institutions with higher loan-to-deposit ratios will need to consider alternative funding needs should attrition occur, which may impact their level of aggressiveness in retaining deposits.”  The white paper includes specific recommendations for banks to:

  • Identify risks;
  • Establish the broader corporate strategy;
  • Create specific strategies to address rate movements, as well as competitive responses and customer responses to rising rates, and
  • Prepare and execute those strategies.

“With rate changes on the horizon, the time to prepare is now,” says Bennett.  “Every institution has unique characteristics that have impacted their past performance and will continue to influence their future success,” he notes.  “By spending the time to understand these characteristics, every institution can gain an understanding of their current situation, identify short term gaps or opportunities, and plot their intended actions.”

PROFIT INSIGHT has been working with banks for over 40 years to optimize every facet of their businesses, from deposits to operations, credit cards to loans.  During that time, the company has helped create over $40 billion in value for financial institutions on six continents, receiving much of its compensation based on the cost savings and revenue improvements it enables clients to realize.  “We have seen many market cycles over the years,” Bennett says. “With the right analysis and advice, they often represent opportunities that can have lasting benefits for financial institutions that are well prepared.”