PROMONTORY INTERFINANCIAL NETWORK SERVICES UPDATE:
The World Is Changing: Are You Asking The Right Questions?
By Steve Kinner
Senior Managing Director
Over the next year, some significant changes are expected for the financial sector. Many are predicting one more rate increase before the end of 2017 and more in the years following should the economy stay on its current track. The Fed, as noted by Alan Blinder in our June 2017 edition of Viewpoints, has offered a detailed plan for shrinking its balance sheet “by $50 billion per month, divided $30 billion/$20 billion between Treasuries and MBS.” Both the rate increases and downsizing of the Fed’s balance sheet could well lead to stronger deposit competition in the near term with expectations that competition will intensify over the long run.
On the political front, the combination of the expectation that Congress will pass a regulatory relief package sometime this year or early next and the coming changes in leadership at the Fed, Treasury, FDIC, and CFPB over the next year could create a very different regulatory environment for the financial sector.
Given the changes ahead, banks must plan now for how to take advantage of the likely opportunities and challenges that may arise. The first step in developing a plan is making sure you are asking the right questions. Some of the questions we believe banks should be discussing include what is the likely impact of all this on deposits (including deposit relationships and pricing), profitability, growth, and interest rate risk strategies?
The answers to these questions will help institutions identify their priorities and needs. But figuring out what the right solution should be is the real challenge. We believe most banks will need more options, not less. This will require a toolkit that can provide a range of effective, flexible selections—multiple levers that can be activated and calibrated based on marketplace changes and bank needs. In identifying what tools to put in your toolkit, banks should consider the following:
- What products and strategies are other banks having success with?
- What tools could provide a competitive advantage?
- Are the solutions customer-friendly and appealing, and what is the associated size of the opportunity?
- Which options do regulators seem to look at more favorably?
- Which options can be implemented at our bank, given its employees and systems?
- How much work will be involved? Will employees embrace the change required?
- Which solutions fit with our existing ALCO and other policies?
- Which solutions will have to be evaluated by a New Products Committee?
The next few years promise change and opportunity. We pride ourselves on developing innovative solutions that have addressed long-standing business problems for our banks. We believe that many of our existing services—such as CDARS®, Insured Cash Sweep®, and IND®—will help financial institutions address the challenges discussed above. But we are also working around the clock to develop additional tools to help banks better manage their balance sheets, attract deposits, improve and strengthen customer relationships, increase fee income, and improve profitability. If you would like to find out how to get the most out of our existing services or learn more about new products we are readying for launch, call your Regional Director or send us an email at firstname.lastname@example.org.