Highlights of a survey of 200 bankers in North America

Well, it happened…interest rates finally moved up for the first time in almost 9 years. So now what? The much anticipated rate increase announcement by Federal Reserve Chair Janet Yellen has bankers both excited and nervous. Predicting client financial behavior is going to be a challenge in the coming months, especially when you add an uncertain economy and intense competition. The ability to understand the impact on the balance sheet will be critical in developing a strategic plan in a new world.

This “inevitable” announcement had been expected for many months now. What exactly does it mean for the consumer deposits business? Well, according to a survey of more than 200 bank executives conducted by SourceMedia (publisher of American Banker) on behalf of Earnix in Oct 2015, it’s the cause of, and solution to, all consumer banking’s business challenges.

Bankers are actually somewhat pessimistic about how much rates are going to rise. According to the SourceMedia –Earnix survey, three-quarters of respondents predict that the fed funds rate would be 75 basis points or less in December 2016. What is interesting is that the bond markets are effectively predicting a better than even chance that rates will be above 1% by the end of 2016.

When asked to rate their institutional goals on a scale of 1-5 (least to most important), Net Interest Margin and Net Interest Income growth were 2 of the top 3 priorities for survey respondents. So, while bankers are clearly reluctant to assume that rates will rise quickly, they are at the same time counting on these rate rises to help meet their interest income growth goals.


How important are each of the following goals to your institution regarding its consumer deposit portfolio for 2016?

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Of course, the other way to increase interest income is to acquire more balances either by increasing share of wallet with existing customers or acquiring new households. Consumer deposit managers are very optimistic when it comes to their deposit growth forecasts for 2016. As the table below demonstrates, 11% see growth of more than 10% as possible next year, another third see growth in the 5-10% range – so almost half of consumer deposit product managers see growth that will be 3-4X the growth rate of GDP.


To the best of your knowledge, what is your institution’s forecasted consumer deposit growth for 2016? Please select one response only.

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Here’s the challenge for consumer bankers: deposit growth overall for the past 2 years was about 5% – but the distribution is uneven across product categories. Growth was strong at 9% on average for demand deposits, just under 5% for savings accounts but virtually flat for time deposits. The shift in product mix over the past several years drove Cost of Funds (CoF) down, expanded margins and satisfied Liquidity Coverage Ratio (LCR) requirements. However, with a steepening yield curve and further rate moves on the horizon, banks have already seen a shift in deposit growth back into CDs at lower margins, and we expect that will continue. Of course, Checking and Savings continue to remain a cheap funding source, but with rising rates and a shift in deposit mix back to CDs, it may be difficult for product managers to expand margins and grow deposits at the same time.


U.S. Domestic Deposits
Source: FDIC

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We believe that there is a solution to this seemingly intractable challenge: using data and analytics to better target customers with rate offers that will meet deposit growth goals while keeping cost of funds as low as possible.

Finally, we all understand that there is a constant flow of funds across checking, savings and time deposit accounts. In a follow up blog, we will discuss the implications of the rising rate environment on flow of funds – what it means for household acquisition, cost of funds and interest income.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]


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