With excess liquidity, it is tempting to change approaches to more effectively use idle cash. Hesitation should be warranted to not lock in low, long-term investment rates along with ensuring credit policies to fuel loan growth are not degraded. Volatility and financial health could quickly result in an impaired loan asset. Sometimes it is better losing out on incremental short-term returns, sitting on the sidelines during unprecedented times.
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Matt Johnson
CFO
Premier Bank
Omaha, NE
Posts reflect my personal opinion and do not represent any organization in which I am affiliated.
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Original Message:
Sent: 06-28-2021 17:09
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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