I think you have to keep everything in perspective. Deposits ebb and flow and you don't want to do
anything to endanger customer relationships. We are looking at public funds and not bidding over
a market rate since those deposits come up for bid every 2 years. We are also realistic with our
customers and tell them "we have excess liquidity too, but we're only getting 5bp from the Fed. It's
hard to pay significantly more than that." They usually understand that explanation.
As I told a friend the other day, "who would have thought bankers would turn down deposits?".
Indeed, a strange time we are living through.
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Original Message:
Sent: 6/28/2021 5:10:00 PM
From: Barb Rehm
Subject: Tuesday Topic: Liquidity Without Loans = Trouble
In banking, deposits are good. They fuel loan growth, improve margins and produce profits. But you truly can have too much of a good thing. The supply of deposits and the demand for loans is way out of whack right now, squeezing margins, shrinking profits and - depending on how long these conditions persist - threatening survival. As Josh Siegel of StoneCastle Partners put it to The Financial Brand as profits decrease, capital dries up. "If the rate of return isn't attractive enough, then eventually shareholders will decide to get out, which dries up capital and drives banks out of business," Siegel said.
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So let's help each other - what are you doing to deploy or discourage deposits? When are you expecting loan demand to build? How are you amping up profits?<o:p></o:p>
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Barb Rehm
Senior Managing Director
IntraFi Network
Arlington VA
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