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ICS, A Safe Bet

Recently, three Network members got together to discuss how ICS is helping their banks grow relationships and improve bottom line. Two bankers talk about how they have retained key customer relationships while lowering their cost of funds (in one case by 30 bps, net of fees) and one discusses how his institution used ICS as an “anchor” to successfully cross-sell additional services, including other core deposit products and multi-million-dollar commercial real estate loans. To read their stories, visit the "Big Idea" here. return to top

ICS Case Study: Replace Costly Repo Sweeps and Control the Cost of Funds with ICS

To meet the safety needs of business customers, many banks struggle with restrictive and cumbersome options, including repo sweeps and letters of credit.

Located in the central U.S., one community bank with a strong business and wealth management focus used ICSSM to significantly reduce safety-related requirements and pass along some of its cost savings to customers.

Learn More About ICS with FREE Webinars

Promontory is offering FREE webinars that provide an overview of ICS, a low-cost, reciprocal deposit sweep service. Learn how ICS enables banks to attract large-dollar relationships, replace higher-cost funding, and reduce ongoing collateralization requirements -- while setting the rates they offer to depositors.

Steve Kinner, Promontory’s Senior Managing Director of Sales, will host these webinars, and will be available to answer all your questions about the service.

Don't miss out on a chance to learn about Promontory's new, profit-enhancing service. The webinar will take place on the following dates:
Thursday, January 12, 2012, 3:00 PM - 4:00 PM ET

Tuesday, February 14, 2012, 3:00 PM - 4:00 PM ET

Tuesday, March 20, 2012, 3:00 PM - 4:00 PM ET

To attend any of the webinars listed above, click the corresponding link. You will be taken to the registration page of that webinar. Click on "Registration" and enter the requested contact information. Then click the "Register" button, and an email will be sent to you with the login information. A reminder email will automatically be sent to you one day in advance of the webinar.

Ahead of the Curve: Large-Dollar Relationships Are the Key to Banks’ Future Success

The saying, "History repeats itself,” may have been first recorded in English in 1561, but it's just as true today.

Back in the summer of 2008, just as the financial crisis was gathering steam, attracting core deposits was a priority. At that time, the median loan-to-deposit ratio for the largest banking companies was above 105 percent, showing an imbalance of loans exceeding deposit levels.1 These imbalances were not something new, but rather part of a larger trend starting in the 1990s that saw banks chase large-dollar deposits – indeed, nearly any size deposit – as growth in traditional deposit funding sources stagnated and failed to keep up with the increase in bank assets.

Today, with the economy still in the doldrums, many in the banking sector, flush with cash, find themselves doing what would have been unthinkable just a few years ago; they are discouraging – even actively turning away – deposits.

However, whether history repeats itself in the near- or long-term, some large banks continue to focus on large-dollar relationships. Let’s take a look at some of them.

Positioning for Long-Term Success

While it may cost more in the short term, attracting multi-million-dollar relationships can help to build bank franchise value, provide cheaper funding to support loan growth when the economy rebounds, and offer a hedge for the future against higher cost of funds. Wells Fargo CEO, John Stumpf, understands the tradeoff between short-term costs and success in the long run. For that reason, he is committed to adding as much in new deposits as possible. The American Banker recently wrote that “Wells Fargo & Co.’s chief executive, John Stumpf, has a pretty clear message for those who think Wells should slam on the brakes of its rapid deposit growth – go jump in a lake.” And it went on to quote Stumpf as stating, “We’re long-term thinkers and bringing on new relationships that happen to come with deposits. Fantastic. We’ll take all those we can take, even if it makes short-term results more challenging.”2

Along those same lines, the American Banker cited Mooney and Webster Financial Corp.’s Chairman and CEO, James Smith, as talking about the importance of “deepening relationships with small-business and middle-market customers.”3

Meanwhile, wsj.com shared that, “Greater New York City, for instance, boasts a deposit base just shy of $1 trillion, about two-thirds the size of the whole of Canada. TD Bank, one of the ten largest financial institutions in North America is now fifth by deposits in that retail-banking market, with a 3.6% share. Mr. Clark [TD’s CEO] wants to be No. 3 in four or five years, without new acquisitions.”4

Increasing Profitability

Bringing in large-dollar deposits can increase bank profitability in a number of ways. For starters, it can help a bank to leverage fixed costs – for example, to spread per-customer acquisition and maintenance costs over a larger deposit base. As Bank Think, an American Banker publication, reported, “It’s no secret that a large number of traditional retail accounts do not generate a profit for the big banks – in particular, customers who hold small balances or do not purchase multiple products from the same institution.” Industry estimates vary widely, suggesting anywhere from 25% to 75% of accounts either just break even or produce operating losses. This is probably why a number of banks are trying to win over larger business accounts and other large-balance clients. Are banks flush with cash really willing to do that? The Chicago Tribune reported, “It may be all the rage for Occupy-Wall-Street-types and others to take potshots at people with a high net worth, but those hefty balances add up to bigger bucks for the financial services industry…Chase believes that its private-client business could generate as much as $1 billion in net income annually. That’s why it and other financial services firms, including Bank of America, PNC Bank, and even Discover Financial Services have recently introduced or bolstered products and services for wealthier clients.” Additionally, large-dollar deposits can be used to develop close relationships – relationships that foster cross-selling opportunities at a time when cross-selling is so important to a bank’s bottom line. Terry McEvoy, a banking analyst with Oppenheimer & Company says that “banks are struggling to grow revenue” and that “selling more products to more customers is key.” And the American Banker recently reported that bankers believe that “selling more products to existing customers…would be crucial to earnings growth.”5 PNC Bank's Chairman and CEO, Jim Rohr, says his bank is focused on adding new customers and cross-selling other banking services. Cross-selling to new depositors will greatly help the bank’s bottom line. According to Rohr, “If we cross-sell new clients, we’ll see an almost $220 million increase. And we‘re going to do that.”6

Building a Fence Around the Best Customers

Good clients, particularly large-dollar customers, are hard to find. And once you lose them, it’s even harder to get them back. Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co., hit the nail on the head when he underscored the importance of keeping good clients for the long term. “We have profits, and we have clients. So the clients are the same as deposits. We don’t turn them away [to improve net interest margins] if they’re good clients.”7

Tools for the Future

Corporate cash holdings have grown by 59 percent since 2008, and the appetite for safe investments is expected to remain big. If history is any indication, now is the time for forward-thinking banks to position themselves competitively for the future by attracting profitable relationships and protecting their best customers. These goals can be achieved more easily with two great tools – CDARS® and ICS – available to members of the Promontory Network.

By enabling banks to offer a return plus access to multi-million-dollar FDIC insurance, CDARS and ICS can help financial institutions to attract customers with six, seven, and eight figures to invest. This means Promontory Network member banks can build deeper relationships with their best customers, as well as attract new, large-dollar clients.

Get ahead of the curve by calling Promontory’s Treasury Desk at (866) 776 6426 or emailing Treasury_Desk@promnetwork.com.

Discover How ICS Can Benefit Your Bank

Watch this video to understand the benefits of the ICS service, along with how ICS works. For more information about ICS, click here, or contact a sales representative in your area.