Banker To Banker

Main Street Lending Profitability

What is with all the waving we do at the end of Zoom calls? Should we start waving as we back out of the room for in-person meetings in the future? By the same token, many banks are baffled by what to do with the Main Street Lending Program (MSLP), as this is not something we would do in normal times. Yet, we found ourselves both participating and waiving at the end of those MSLP Zoom calls. No matter if your bank is going to participate in MSLP or not, understanding the risk involved is a master class in loan structuring and credit.

Remote Working Improvements

Covid-19 has changed many aspects of banking from branch operations to credit underwriting and remote supervision of employees. Many community bank managers are physically distanced from their teams because of the pandemic. This distancing creates new challenges on how to supervise, motivate, communicate with, coach, train, and review bankers. We face this same challenge and we would like to share how we see other bank managers handle this challenge as well.

 

Improving banking through ratings

In the online world, customer reviews and ratings are ubiquitous. Consumers have come to expect them, yet few banks use them. Ironically, sites that rate banks, such as NerdWallet, BankRate, and others, maintain detailed reviews on banks with great success as well as places like Yelp. If your bank is not offering rates, chances are your potential customers are getting their information from elsewhere.

Industrial CRE Lending Risk Update

While several commercial real estate (CRE) sectors are showing signs of stress, the industrial sector is one of the few bank credit lines that are improving. Companies gained confidence at the end of the second quarter and started to lease more space. As such, weekly leasing activity jumped back to pre-Covid-19 levels after hitting a low in mid-April. In this article, we take a quick look at national CRE industrial sector economics and explain why banks may want to consider reallocating more capital to this area. 

 

Branch Investment Rebalance

Chances are you were already reducing the number of your branches. Between the interest rate environment over the past several years, the increase in digital spend, and the quest for greater operating leverage, banks can no longer afford large branch structures and still return their cost of capital. Recent studies now suggest a lower probability of a COVID-19 vaccine and a much lower probability of achieving herd immunity, at least over the next three to five years. As such, most every bank will be forced to rethink its branch strategy.

 

Deposit Innovation

HMBradley is a fintech that has partnered with Hatch Bank, a subsidiary of Firstrust Bank ($3.7B, PA), to offer two innovations that we have talked about in the past, but few banks have executed. This fintech has tiered their rates based on the percentage saved and offers only a single operating account instead of checking, savings, money marketing, and similar accounts. In this article, we will cover both ideas for your bank’s consideration.

 

A New Way to Tier Deposit Accounts

The LIBOR to SOFR Transition

In the next twelve months, the transition from LIBOR to alternative Risk-free Rates (SOFR in the US) will take an important course. Banks with products tied to LIBOR need to understand the implications of ISDA Fallback Protocol and how to manage possible risks with this critical industry transition. Shortly, ISDA (International Swaps and Derivatives Association) will be publishing LIBOR Fallback Protocol. Firms that sign up for the LIBOR Fallback Protocol agree to the spread adjustment and the fallback rates if LIBOR becomes unavailable in the future.

Digital Marketing

In the last quarter, the money market world has changed, which has important implications for banks. Not only is it less competition, but the influence that money market funds have on banks is substantial, and so it means less pressure on rates. Less pricing influence means less deposit price sensitivity, which not only means rates are lower for banks, but marketing dollars go much farther. In this article, we look at some structural changes in the market and why now may be one of the best times in history to gather deposits.

Multifamily Lending Perofrmance

One of the most underappreciated commercial real estate trends in banking is the remarkable stability of multifamily rents during this pandemic. As of last week, according to the National Multifamily Housing Council (NMHC), 77.4% of renters in an 11.4 million sample size of professionally managed apartment complexes were making their rent payment which compares to 79.7% during the same time as last year and an average of about 82% for the year (summer delinquencies are usually higher).

Identity Management and Banking

Underappreciated in the banking industry is the growing role of identity and access in banking. As banks build their digital strategies, we need to stop and think about how we know our customers (identity) and how we know that the verified customer we believe is trying to access a banking channel is really the customer we think it is (access). In this article, we explore the concepts of identity and access management (“IAM”) and how they should fit into every bank’s long-term strategy, especially given the popularity of privacy initiatives.

 

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