It is December, which means many travelers will be taking last minute flights in order to make sure they qualify for the next loyalty tier. Just as airlines have perfected customer engagement through loyalty tiering, so to can banks.
We have laughed about it for years at banking conferences, but rates at one bank, have in fact, gone negative. While earning interest on deposits has been a long held precept in banking, the Alternative Bank Schweiz (ABS), a community bank in Switzerland, is the first bank in history that has moved an entire product line to negative rates. As of this week, retail customers get charged 12.5 basis points for short-term deposits and 75 basis points on deposits above 100k Swiss Francs ($98,202).
As we look ahead for 2016, we are noticing that there are some key trends emerging in financial services that banks can take advantage of. As the economy strengthens, the confirming of status is emerging as a key motivator and can be used by banks to drive behavior. We first reported on this trend when we discussed turning your bank into a night club and today we talk about the application of exclusivity at the customer level. The major shift here is that instead of banks accepting all customers, this trend is all about having customers prove themselves to the bank.
Last week, we broke down how a quantitative bank may look at credit in order to get more accurate on their credit grades. Most banks do this to make sure they have their loan loss reserve levels correct. However, the better reason to invest in your credit model is to win more loans from the competition, while not being adversely selected. Today, we look at one of those two strategies that a bank might employ to drive out their competition from the marketplace or at least protect themselves from being driven out of business.
The competition for qualified borrowers is intense, and both pricing and structure are being compromised. In our dealing with hundreds of banks and thousands of borrowers, we observe strategies and structures that have worked for our customers. In today’s competitive environment, it is important that bankers keep a close watch of what is working and think creatively to try to maintain structure and price. We would like to share ten strategies that we and other community banks have effectively deployed to win bus
Truth be told, there is very little practical knowledge taught in college. Sure, details of Horace Mann’s life, the atomic weight of Californium and when to evoke the pooling of interest accounting method all have their place, but these concepts are not nearly as useful as understanding how restricted stock vesting works or the difference between Merlot and Pinot Noir.
Earlier in the week (HERE) we equated community bank credit ratings to toenails and substantively showed community banks the current probabilities of default for commercial real estate (CRE) by credit risk grade. We discussed how banking is becoming more quantitative and how when rates go up, it will be the bank that correctly classifies credit, allocates capital and correctly prices risk that will have a distinct advantage.
If truth be told, community bank credit ratings are like toenails. You see them a lot, you occasionally think about them, every now and then you maintain them, you make sure they look good when you know they are going to be seen, and you only have a vague awareness of their practical use. The underutilization of community bank credit ratings is about to change over the next five years as rates go up and more sophisticated models help bankers get more quantitative about how they classify credit, price risk and allocate capital.
Later this month, Secretary of State John Kerry will attempt to bring peace to one of the world’s most dangerous troubled spots – a Washington D.C. Best Buy. There, mobs of discount-fueled shoppers will be viciously climbing over each other attempting to save $25 on the latest Xbox One. Kerry will no doubt realize the futility of the negotiations and head back to the Middle East where people are more reasonable.
Take one look at Ben Carson, Donald Trump or Bernie Sanders’ poll numbers and you know things have changed in America. Straight talk, unabashed confidence and a “buck stops here” mentality plays well these days with the general populace and it is getting engagement. We pontificate that none of these presidential candidates would have ever stood a chance of even being seriously considered for a Party nomination, except for the fact that in this age of speed, complexity and short news cycle, clarity rules.
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