change the Street's perception with beta moves that have nothing to do with their true base of core deposits. They’d prefer to move all their discretionary monies into repos, so they become a borrowing cost, or just sweep them off so they can actually generate some fee income and, in effect, slow the rise in their deposit costs. They’re also starting to worry about reputation risk, which is a first for me (and I’ve been doing this for a long time). Regarding your question, banks borrowing money are actually pushing local market pricing up. They don't match wholesale, but they’ve got a long runway, given the delta between market rates and what other banks are paying. They’ll pay a lot more than other institutions, but they’ll also save a lot. Right now, borrowing banks are facing high opportunity costs, so if they're dealing with a larger account, they're more apt to pay up or negotiate. Otherwise, they’ll just have to replace them with something substantially more expensive. Loan growth was good in the second quarter, but there were signs of it faltering in the third quarter. What have you been hearing? There’s a clear consensus that pipelines have peaked. When we talk to banks about forecasts, many anticipate making half as many loans next year as they will make this year. Hurdle rates are up because of interest rates, there’s lots of uncertainty surrounding any kind of real estate, and businesses aren’t as comfortable making investments right now. Banks themselves are pulling back on some concentrations, asking tougher questions. We've seen a lot of disruption in the past two years from COVID-19 and other factors. How should banks be thinking about ALCOs right now? Way too many ALCOs tend to be more of a reporting function that spends too much time creating detailed decks that do little more than give people headaches. Then, toward the end of meetings, they’ll shoehorn in conversations on what to do. Those institutions have it backward. ALCO should feed strategy. It should be a profit center, not the cost center it tends to be. What are the biggest mistakes banks are making today? One is that they’re not changing loan pricing to levels that represent fair, risk-adjusted returns. They’re letting the liquidity overhang get in the way. The majority of banks – not all – are knowingly doing deals at perhaps the tightest spreads ever. But their business models don’t support FHLB plus 150 to 200. They don’t support SOFR plus 150 to 175. They don’t support prime minus 100 or more. Banks have to get away from all that. They can’t let irrational/ desperate competition dictate their ongoing lending strategies. They need to improve their balancing act. Another is that many banks don’t socialize the logic underpinning their value propositions. They don’t explain how to deflect objections to those who work on the front lines. They don’t institute formal feedback loops, either. Banks should never underestimate the importance of communication, coaching, and guidance. www.coloradobankers.org 10
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