Core Deposit Growth

How to Survive the Coming Core Deposit Crisis (Cross-Selling Secrets Revealed)

Why You Need More and Better Core Deposits NOW!

Regulators are looking a little cranky again—and for good reason.

They are coming in fairly heavy-handed with banks that are not mastering deposit strategy and execution.

To keep regulators happy, you will want to do a quarterly Deposit Loyalty Study. That study should address that you are mastering the DEPOSIT SACRED SIX.

What’s the Deposit Sacred Six? It’s a litmus test to analyze your level of success regarding all of these minimum standards that regulators require you to meet to prove you won’t have liquidity issues. They are:

  1. Relationship depth
  2. Location
  3. Price
  4. Size
  5. Length of relationship
  6. Transactions

It is about to get ugly for many banks—because, quite frankly, most banks don’t look very strong on these six.

Why the problem?

It wasn’t that many years ago when most banks were scrambling for deposits. Rates went to ridiculous levels, and many banks confused the easy attraction of deposits with a “solution.”

But the real test of whether banks can generate their own core and low-cost deposits is about to hit.

But there is a real problem…

Almost every bank is dead wrong with their deposit strategy—and regulators are all over it

Advertising rate - Dancing with the Devil

A real sign that a bank has some serious misunderstandings about how a good deposit strategy works is when they advertise rate. Let’s think about that.

First, you are attracting “rate-sensitive customers.” On average, 87 percent of customers lose money for a bank. So if you are just attracting more of the 87 percent, it’s hard, as the old joke goes, to make that up on volume.

Let’s test the strategy of advertising rate against the Sacred Six:

Relationship—NO, that isn’t likely. Customers attracted by this strategy have already shown you they are rate-sensitive.

Price—ah, no. That one was easy.

Length of transaction—not likely.

Transactions—also not likely.

Size—perhaps a win in some, but not all.

Local—yes, they might be local.

So overall, advertising your rate on CDs or checking accounts is a TERRIBLE deposit strategy.

Don’t even try to make a case that people in your market are rate-sensitive. If you have even one restaurant in your market without golden arches, your assumption is delusional. You just haven’t given them something worth paying for.

No deployment strategy of the top 20 percent of the top 20 percent of deposit prospects

The best way to help the poor is to not become one of them.

Many banks miss the point—they market and sell to the whole lake instead of focusing on the fishing hole with the most profitable customers.

National research shows that 83 percent of your sales come from your top quartile of salespeople, and only 6 percent from your bottom quartile. Sounds remarkably like the 80-20 rule applies there.

And 80 percent of your profit from low-cost deposits come from a very narrow psychographic and firmographic of customers. Remarkably, those psychographics and firmographics also stay sticky, don’t negotiate rate, and buy everything you have.

Sounds like a plan to go after and get all of those would be the answer, doesn’t it?

Unless you have a deployment strategy that you can execute to bring in all the next best customers, your people are probably spinning, talking to those who walk in the door who are asking for a rate match, and matching it.

Without an integrated marketing and sales process designed to create extreme value for your next best 100 prospects and a system to manage it so you get all of them and all their business, it probably won’t happen.

Not getting a minimum average of 7 cross sales on new accounts

Before they start a process to radically move this needle, most banks start with an average of 2.2 cross sales on new accounts. Not good.

It takes at least 6 or 7 to make that customer sticky enough and cure their price-sensitivity.

If this needle doesn’t move up, you have substantial risk of liquidity issues as well as Net Interest Margin compression coming from the deposit pricing side.

Many banks who aren’t all over this will need (and get) a regulatory slap before they get serious about challenging the old-school deposit gathering strategies that fail as rates go up.

It’s not too late to attract a massive amount of deposits in a short period of time that meet the mark and protect your safety and profits…but the window is short. Get ahead of it!

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Roxanne Emmerich