When it comes to loan authority structure, six banks will do it six different ways. Loan authority is granted from a bank’s Board of Directors and gives each credit line position a certain amount of lending authority to approve the loan. While a front-line loan officer may have $500k in authority, their boss, the Chief Credit Officer, may have $5 million. How your bank handles loan approvals can have a profound influence on your bank’s performance. Get the loan approval process wrong and find that your bank is not only taking on too much risk, but driving up costs.
When we asked bankers what made a difference in 2015, we wanted to highlight one of the best pieces of advice that was given to us and that some bankers put into practice this year. In the quest to build a better bank, there are two questions that the answers can help your bank hone in on what is important.
Who doesn’t like the Frank Capra classic It’s a Wonderful Life? It is not only about a banker doing good, but it has all the elements of a great story – good opening, interesting characters, a high story arc, conflict and satisfying resolution. Not only should every banker keep the classic in mind because of the heartwarming story, but the film holds the key to better bank marketing.
To understand the point of this article, you are going to have to go out and purchase the two t-shirts in the picture. Both have the following selling points: “100% cotton,” “Ribbed crew neck,” and, get this for clarity – “short sleeves.” The one on the right will set you back about $3.16 and can be purchased at Target, JC Penny’s or wherever fine underwear is sold. The one on the left however, will cost you $120 and can only be purchased at… well, it can’t. The official “Kanye West Hip Hop T-shirt” had to be pre-ordered. Even in pre-order, the shirt sold out.
Usually, in the face of rising rates, banks increase their early withdrawal penalties in an attempt to stem customers from requesting their money back early so that customers can reinvest at higher rates. Increasing withdrawal penalties serve to increase liability duration and help bring convexity closer to zero. In a rising rate environment, this is exactly what you want as a bank. Oddly, banks are doing the opposite.
Early Withdrawal Penalties Are Shortening
Unfortunately, most banks have no idea the answer to the title question. It is actually worse than that - most bankers THINK they know who their best customers are. The worst of all is most bankers can’t even agree on what a “good” customer looks like. If the bank cannot agree on what constitutes a good customer then how can you ever expect to get more of them? If this seems like a trick question, give it some thought. Chances are, you are like most bankers.
Pick up almost any survey, from Pew to JD Power and you will find that deposit account fees are a significant driver of customer satisfaction. Often it is a major factor in choosing or leaving a bank. Unfortunately, many banks set their fees according to where their competitors are. If your bank does this understand that it is based on the fact that your competitors know what they are doing. The logic also presupposes that you are exactly like your competitor in terms of customer, geography, goals and strategy.
It is hard to tickle the cockles of a banker’s heart with a holiday gift mostly because most bankers don’t know where the cockles of their heart are. Contrary to what the press might have everyone believe, we do have them and the reality is they are outsized. Banker’s, as a generalization, are among the nicest, most caring, patriotic and honest as you will find in any industry. This year, as we can personally attest, bankers worked hard putting the industry back on solid footing and we want to give every reader a gift.
If there is one thing we can all improve on its customer service. While the industry as a whole continues to show top ranking for satisfaction among all customers, the dispersion within the industry is getting wider. According to Gallup polls, the banking industry ranks near the top of all businesses in the country for customer satisfaction along with pharmacies. J.D.
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