Who Owns Deposit Growth?
The DCG advisory consulting team starts every week with an internal discussion of market trends, regulatory developments, and the real experiences of our bank and credit union clients. Here are the notes from this week’s Monday Morning Meeting.
Check out the meeting notes from previous weeks.
Do you have a question?
Institutions know how to grow loans: Hire lenders. Establish production goals. Measure pipelines. Compensate people for business generated. What about deposits?
The question “Who owns deposit growth?” became one of the more interesting parts of this week's discussion. And for many institutions, the answer is surprisingly unclear, despite deposit growth becoming increasingly important given the industry's near-term and long-term funding challenges.
Deposit Pricing Isn't a Growth Strategy
When the Fed raises rates, and competition increases rates, the traditional response is often straightforward. Raise rates to maintain and/or grow deposits. Paying more for deposits doesn't build a deposit franchise. It simply rents funding from customers whose primary relationship with the institution is the rate being offered.
In addition, there are critical distinctions between defending existing balances, meeting a short-term funding need, and building a long-term deposit franchise. These three very different objectives require separate and distinct strategies.
Before paying aggressively for deposits, ALCO should understand whether money is needed today, what other sources are available, and whether a short-term pricing decision is being used to solve a much longer-term strategic problem.
What If We Treated Deposits Like Loans?
FIs routinely employ people whose job is to find good loans. Why shouldn't there be similar accountability for finding good deposits?
“Who are the hunter-gatherers on the funding side of the balance sheet?”
That doesn't necessarily mean creating an entirely new sales force. It means establishing ownership.
Who is responsible for identifying prospective deposit relationships? Who is calling commercial customers about operating accounts? How are Treasury management opportunities incorporated into business development? Are incentives aligned with deposit profitability as well as loan production?
There is no one size fits all strategy. An institution may need to play defense on certain rate-sensitive balances while simultaneously playing offense on its core deposit franchise. These are not contradictory strategies.
ALCO can make deliberate decisions about which existing deposits warrant aggressive retention while continuously pursuing new operating relationships that are less dependent upon being the highest rate in the market.
Deposits are one of the industry's most important strategic resources, and deposit growth deserves the same organizational focus historically placed on loan growth.
So the question for the next ALCO meeting might be remarkably simple:
Who owns deposit growth at our institution, and what are we actually asking them to do?
If the answer is “everyone,” there is a risk that the real answer is “no one.”
What are others seeing?
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