Some bankers assume that customers make decisions based on rational choices. Many bankers have long assumed that customers weigh the pros and cons of each product and consider the value of services that we market to them to make their choices. But nothing can be further from the truth. Not only are many consumers and business people irrational, but their irrationality is highly predictable. By understanding how we can influence customer behavior, bankers can better influence customers’ decision making.
The other day we learned something when our email server went down – collaborative communication applications helped increased productivity for internal projects. Email, we found out, is the lowest common denominator. We have a beta test team using different types of collaborative applications and today we present some thoughts about using these applications in a bank environment.
Our banking industry has our loan loss allowance provisioning almost exactly wrong. To quote our favorite show, Game of Thrones, winter is coming. We don’t know when the cold weather will be here, maybe the first part of October or maybe around Halloween, but we know it’s coming. Since winter is coming, the question arises - How many coats should we have for the winter? For that answer, we simply look at the data and see what the average daytime temperature over the past three months has been. We see it is a warm 81 degrees.
This isn’t a personal question, but it is a question that is growing in popularity. Knowing that efficiency is highly correlated to return, many banks, including us, are taking a look at their largest processes (like lending) and going to their Gemba to do it. With more banks adopting a Six Sigma approach and with banks cutting obvious costs, now is time to reassess your banks production of credit, deposits and services. If you want to know more about how understanding your gemba can help in banking, read on.
We visit hundreds of bankers each quarter, and we note some of the following industry pressures: margin compression, decreasing credit standards and lack of earning assets. To combat these challenges, bankers are deploying various strategies, which include, adding business lines, hiring better talent, consolidating assets, streamlining some long-held processes and upgrading systems. But by far, the most prevalent answer from t
Seeing that we are in the heart of bank strategic planning season one major difference between average and high performing banks are the use of “lead measures.” Most banks come out of their planning effort with a series of lagging metrics such as “Achieve 12% ROE,” or “Reduce efficiency below 65%.” These measures are good because they measure achievement of a goal but they are not optimal because they are not instructive in helping you achieve those goals.
The future in banking looks like fewer, but more experienced bankers. Consolidation of banks will continue, but more digital-based alternative lenders will appear. The banker that can deliver solid financial advice to their client will always be in demand and will be able to garner a premium price for his or her services.
Yesterday, the new operating system came out for iPhones and iPads and its pretty slick. Moreover, Apple announced last week some radical new enhancements to almost every product. No matter what your view is on Apple you have to admire a company that continues to strive for improvement and relevance. You would be hard-pressed to find another company in this world that has the 2x per year pace of innovation that Apple does.
We recently discussed how banks should be treating interest rate floors. Today we want to cover the converse structure – the interest rate cap. We are going to review how banks are using caps on loans and how some banks have been using balance sheet caps to manage interest rate risk. We will share some general observations and our recommendations.
What is an Interest Rate Cap?
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