A Banks Need a Game Plan for Today’s Interest Rate Environment BY ROB BLACKWELL Chief Content Officer, IntraFi As the Federal Reserve aggressively hikes interest rates to tamp down inflation, depositors are starting to demand more for their money. Results from IntraFi’s most recent quarterly survey of bank executives indicate the trend is likely to continue. Ninety-five percent of respondents expect funding costs to go up, and 71% said deposit competition would increase. But this doesn’t mean banks have to let macroeconomic forces or competitors dictate their strategies. Matt Pieniazek, president and CEO of Darling Consulting Group, recently joined me on Banking with Interest to discuss how banks should think about their balance sheets in the current interestrate environment. He explains why all institutions need clearly documented game plans, how to extricate rate from the value proposition, why rising rates are a good thing, and much more. What follows is our conversation, edited for length and clarity: What are you seeing right now vis-a-vis banks and bank balance sheets? The majority of banks aren’t overly concerned about losing relationships. They’re facing deposit pressures in a few areas, but the funds they’ve lost have been mostly discretionary. However, things are about to get interesting. That sounds ominous. What do you mean? During the last rising-rate environment, the Fed took nearly two years to increase rates by 200-225 basis points, and deposit-rate changes were nearly three times as responsive to the second hundred basis points as they were to the first. Similarly, during the period leading up to the Great Recession, we had a 425-basis-point move. Things were pretty tame during www.coloradobankers.org 8
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