I recently had the pleasure of representing Primary Bank’s Board of Directors (one of the first de novo banks chartered in the US since the financial crisis) at the FDIC Director’s College. The sessions were packed with valuable information on industry and regulatory trends, all of which was incredibly relevant to my work on Primary Bank’s Board. However, there was one slide that caught my attention both as a member of the Bank’s Assets and Liability Committee and as a Digital Marketing Executive.
That slide was this one:
This shows the dramatic shift away from non-maturity deposits in the last ten years. Said more plainly, ten years ago, banks had around 45% of their deposit accounts (accounts they materially rely upon to ensure that the they have the liquidity they need for operations) in accounts that were somewhat ‘sticky’ (like Certificates of Deposit) and would not be likely to shift out of the bank if interest rates went up and competition began offering better rates of return. Today, the percent of “sticky” deposit accounts is around 30% (this is true for NH, but also for the Northeast as a region). As Marianne Hatheway (Regional Deputy Director, RMS – FDIC) said in her presentation, this shift could have profound impact on bank liquidity if and when interest rates begin to shift.
Ms. Hatheway noted that, unlike ten years ago, when rates shift today and CD interest rates go up, 70% of deposit accounts can use the new online banking tools to transfer funds out of their checking or savings accounts into competitive rates CD at another institution between 10 and 11 PM at night. The “friction” that used to give banks time to adjust using traditional, non-digital tools, simply no longer exist. Not only does this mean that Banks are now facing new levels relationship risk, it also means they could be facing levels of liquidity risk.
In the face of relationship and liquidity shocks, what is a Bank to do? The key, of course, is to have a digital platform and a digital strategy that can compete. When your banking customer goes online at night with an eye to moving from a savings account to a CD, how easy is it for them to do that with their existing bank? How well does the Bank’s website expose their competitive maturity account products? How well does the Bank’s digital marketing platform use data to understand which customers are at risk for moving money out of the bank? The banks that can’t compete may hear a giant sucking sound of their non-maturity deposits walking out the door before they even know it is happening.
Answering questions like these are why it is a very exciting time to be working with so many banks at SilverTech. It is also why so many banks are working with us on Digital Customer Interaction Strategies. These bank’s know that, as another FDIC staffer said during a break out session, we’re at the point where the “tide’s about to go out” on interest rates, and we’ll see which bank’s digital platforms are going to show that they’ve been “swimming naked.”