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 will 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 interest rate 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 delta between market rates and what banks pay has never gotten this wide this fast. Even if depositors aren’t looking to move their money, it's hard for them to ignore what's happening. Additionally, during the pandemic, we made it easier to do things electronically and conditioned customers to avoid branches. Today, banking practices are very different than they were three or four years ago. So the dynamics are about to get really interesting, notwithstanding the excess liquidity still out there. What’s your advice to banks? Have a clearly documented game plan. (Many banks don’t.) Start by figuring out how much money you can, or are willing to, let leave; then determine which deposits are most valuable and prioritize those. Next, divide your deposit base into manageable pieces. Start by rank-ordering your largest-balance relationships (this will help with one-off conversations). Second, review your mass-market, traditional banking relationships. Third, review the “tweeners,” or those that aren’t quite whales but larger discretionary balances BANKS NEED A GAME PLAN FOR TODAY’S INTEREST RATE ENVIRONMENT By Rob Blackwell, Chief Content Officer, IntraFi 14
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