Graphing the Pace of the Rise in Interest Expense

​I just completed our Annual Deposit study, whereby we regress our rates for IB, Money Market, Savings and Non IB accounts (regression of rates against not only FFS, but also 1, 3 and 6 month libor and 1 year CMT). The study showed a slight increase in beta for IB Checking (3bp) while Money Market and Savings stayed relatively the same.  I don't disagree that banks may see an increase in absolute dollars for interest expense.  However, in our case, it is not showing up as prominently in the calculated beta sensitivity.

Jon

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Jon Drake
Senior EVP & CFO
Peoples Bank
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Original Message:
Sent: 10-19-2018 11:07
From: Neil Stanley
Subject: Graphing the Pace of the Rise in Interest Expense

​It is a very simple, yet revealing graphic when you plot your bank's interest expense on deposits along side the Fed Funds Target.   When we look across the entire base of insured institutions we can learn a lot about the importance and urgency of enhancing deposit pricing and sales strategies today.   This environment significantly differentiates performance in controlling interest expense between those who are doing the same thing they have done for decades and those who are promptly incorporating new more efficient and effective approaches.  I encourage all ALCO teams to explore this macro approach to tracking your performance.

Using FDIC quarterly data I have attached a sample bank's results.  You can see clear evidence in this sample of the deposit beta rising as the impact on domestic deposit interest expense is accelerating in the recent quarters.  Many of the banks I have looked at have the steep rise in the last quarter like the sample here.

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Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
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