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Echo Partners Community Bank Blog

    Interest Rate Risk Fuel

    Close-up of hoses in a service station-1

    Just like your car, your interest rate risk model gets you from point A to point B. With IRR models, the journey is from your core system data to your rate sensitivity measurements and reporting. That gets bank management, and your examiner, where you want to go.

    But just like your car, without enough fuel, or without the right fuel, completing your journey can be problematic. We know what fuel to put in our car, but what’s the fuel for your IRR model?

    Bank-specific assumptions are the fuel for your IRR model.

    Bank specific assumptions include the average life and rate sensitivity beta for your nonmaturity deposit accounts (NMDAs) as well as the prepay rates for your loans, and they’re critically important to an accurate IRR model result. They’re so important because they represent the biggest unknowns in your entire asset liability process.

    Interest rate risk models work by modeling the institution’s cash flow changes associated with changes in market rates. And like all models they work best when the inputs accurately reflect reality.

    Consider your balance sheet. Every asset and liability on a financial institution’s balance sheet has both a stated maturity and a rate set or formula except your NMDAs. Similarly, your loans have a stated maturity and amortization but they’re subject to prepaying early.

    Unless you accurately estimate the average life and rate sensitivity of your NMDAs and the prepayment behavior of your assets, your IRR projections will suffer. In fact, these 2 sets of assumptions by themselves are sufficient to completely change your reported interest rate sensitivity from asset sensitive to liability sensitive, or vice versa.

    Because these bank-specific assumptions are so important to a robust IRR process, the regulators specifically called them out in the landmark 2010 Advisory on Interest Rate Risk. They said…

    “The regulators remind institutions to document, monitor, and regularly update key assumptions used in IRR measurement models. At a minimum, institutions should ensure the reasonableness of asset prepayments, non-maturity deposit price sensitivity and decay rates, and key rate drivers for each interest rate shock scenario.”

    Our regulators then specifically followed up with the 2012 Interagency Advisory on Interest Rate Risk Management Frequently Asked Questions…

    “Can an institution use industry estimates for non-maturity-deposit (NMD) decay rates?

    Answer: Institutions should use assumptions that reflect the institution’s profile and activities and generally avoid reliance on industry estimates or default vendor assumptions….An institution can contract with an outside vendor to assist with this process if necessary….Similar considerations should be given to other key rate drivers and prepayment assumptions used in the IRR model.”

    Since then, examiners have been on the lookout for bank-specific assumptions along with appropriate documentation. It’s not a matter of if your examiner will question your bank-specific assumptions, but when.

    NXTsoft Data Analytics can help you meet this regulatory requirement by performing, delivering and documenting a statistically valid deposit study and loan prepay study. All at a surprisingly affordable price.

    Ask for more information on data requirements and deliverables.

    How to Choose the Right Deposit Study for your Community Bank

    Top view of businessman legs choosing his way.jpegI hear the same things everyday:

    "Howard, my interest rate risk isn't what it should be..."

    "There must be something wrong with my IRR model..."

    "I keep bumping up against my EVE limits..."

    "My examiner (or the Board) is nervous about our interest rate risk profile..."

    There are many reasons why someone's community bank interest rate risk process may not work.  However, the most common (and easiest to fix) is their bank-specific deposit assumptions or "deposit study".

    The deposit study is essentially a mathematical study of the history of our deposit trends that allows us to document a longer average life for our nonmaturity deposits.  This lets us rebalance our IRR profile.

    So, why is it that deposit studies are a major problem?

    When it comes to deposit assumptions there are three things we must keep in mind:

    1. We need to remember that deposit assumptions are the most powerful part of the entire IRR modeling process.  We teach that there are 3 different IRR modeling components: Data, Model, and Assumptions (DMA) (discover more about this by clicking here) and each component contributes a different degree of influence.  Assumptions are responsible for about 80% of your IRR modeling results.
    2. We need to assure that the deposit study accurately captures the deposit behavior of our bank.  Not only must the study capture this behavior but the results must stand up to scrutiny.  We rely on statistical significance to prove this point.  The only thing worse than not having a deposit study is having one that your examiner rejects because it just doesn't hold water.
    3. Different kinds of banks generally approach deposit studies at different levels.  Big complex banks tend to have big complex (expensive) deposit studies.  Community banks need a simpler, easier and more affordable approach.  But one that still stands up to statistical muster.

    For example, if you ask a community banker to dig out 20 years of deposit history, on an account-by-account basis, tracking each and every account individually, do you think they're going to be interested in doing that?  Or even able to do that?  

    Why not?

    You see, deposit studies were never a community bank issue until recently, but now your examiner is on the warpath over them.  The trouble is that community banking has been full of mergers, core conversions, branch closings and more...and that data is just not available in a nice neat package like that.

    And even if it was, can you imagine the expense involved?

    That's why you should learn the difference between the static pool (old style... complex and expensive) and the dynamic pool (new style...simpler and more affordable) deposit study methods.  

    Here's a quick recap of the differences.

    Static Pool Method:  Static deposit study analysis relies upon the selection of a beginning year cohort set of deposits, and tracks the behavior of these specific accounts over time. Because the static method requires identifying and tracking specific accounts over time, the static method requires more extensive IT resources and involves a greater risk of privacy issues, due to the specific account identification required.

    The static approach delivers results that illustrate the year-by-year decay for a finite set of accounts opened during one specific cohort year.  Results attributable to any specific cohort are likely to vary greatly from year to year.

    Dynamic Pool Method:  The dynamic pool method uses all the change in all existing balances to derive the decay rate associated with your NMDA account balances.  It has the advantages of being easy to calculate and understand, does not require extremely difficult IT extracts, and does not involve personally identifiable account information, so privacy concerns are minimized.

    Static pool (complex, expensive, huge IT project, privacy issues) or dynamic pool (easier, more affordable, data from standard reports, NO privacy issues)...pick the method that fits your bank the best.

    For almost all community banks, I recommend the dynamic pool methodology.


    Storm Warning: FDICIA 305 No Longer a "Safe Harbor"

    For years, community banks have relied on the FIDICIA 305 safe harbors (along with the old OTS average life assumptions) to support their modest NMDA average life assumptions.  These levels (about 3 to 3.5 years average life) are now under attack by the very regulators who established them.

    We all know that the regulatory community has been sounding the alarm over bank-specific assumptions.


    Recently I've seen many community banks (including some of the smallest and least complex) criticized by their examiners for the lack of supporting documentation on extremely short and conservative deposit assumptions.

    "So what", you might be saying.  

    Here's why it matters. Without proper deposit documentation you're stuck with short liabilties.  

    At the same time, your asset repricings have lengthened (floored loans, longer term loans and investments).  This means you're at risk for busting your interest rate risk limits.


    To remedy this situation, community banks need to get a deposit study.

    In fact, right now there are only 2 kinds of banks:

    1. Those already told by their examiner to get a deposit study.
    2. Those who are going to be told by their examiner to get a deposit study.

    And it's always better to head into your exam with your documentation all neatly complete and delivered than it is to scramble after the fact to try and minimize an exam finding.FDICWinter2013part1.png

    But there is a silver lining...

    Every bank we've done a deposit study for has documented, or even lengthened, their deposit average lives.



    5 Step Regulatory Recipe for Deposit Average Life...Plus the One Thing You Must NOT Do

    It's not often that a bank regulator gives you specific instructions on what to do, and more importantly what NOT to do.

    But when they do spell it out this way, you better be paying attention...

    ...And you better be doing what they tell you.

    Here's what the FDIC says about deposit average life assumptions and how to structure a deposit study:


    Here are the 5 steps:

    1. You must track dollar balances at the product/account level.
    2. You must determine your rate sensitive/non rate sensitive balances (important for bucketing)
    3. You must focus on the change in dollar balances to determine decay
    4. You must translate decay into average life
    5. You must adjust for qualitative factors.

    Don't worry about how to do these things.  I can help you with the specifics.

    Did you catch the one thing you must NOT do?

    That's right.  Do NOT track account opens and closes as this is "insufficient". 

    Would you like me to quickly and personally walk you through the entire FDIC deposit assumption presentation, and what it means for your bank?

    3 Reasons Your Interest Rate Risk Results Aren't What You Want

    123.jpgI hear from a lot of bankers who aren't overjoyed with the IRR results they are getting.  And time and time again I hear them say "It's the model". 

    It's NOT the model.

    At least not the way they think it is.  

    Virtually any IRR model on the market can perform basic interest rate risk calculations.  It's the simplest kind of math there is...primarily it's addition, subtraction, multiplication and division.

    It's creating, aggregating and discounting cash flows.  It's not rocket science, despite what the model vendors will tell you.  

    Of course that's not to say that all models are exactly the same.  They are different, and specific models may well be better suited for specific situations.  But that's a long way away from blaming everything on the model.

    Our proprietary DMA process decomposes interest rate risk results (we calculate full +/-100bps to 400bps shock scenarios on Gap, EaR and EVE for all 6,000 FDIC-insured banks each quarter) into the main components of data, model and assumptions.

    Here's what we found about the sources of interest rate risk modeling results:


    Data is generally responsible for at most 10% of your IRR results.  If you think about it, this makes sense.  Our data feeds are rigorously tied to our g/l, core and subsystems.  Then they're tested, audited and rechecked over time.  The biggest impact of data is seen in the issue of aggregation.  


    As noted above, pretty much all models can deliver a decent IRR result, so learning that models are also generally responsible for about 10% of IRR results shouldn't surprise you.  The biggest factor that matters here is the complexity of the financial institution.


    Assumptions let our models turn data into IRR results.  They're like fuel for an engine.  And they have by far the biggest impact on IRR results (up to 80%)...

    ...Because our assumptions are what make our IRR results resemble our bank, instead of looking like every other bank.

    And the biggest of these big assumptions are your NMDA assumptions that drive your DEPOSIT AVERAGE LIFE AND RATE SENSITIVITY.

    Do you know what the most surprising thing about IRR is?  Even though these assumptions deliver the biggest impact on your IRR results, that's where most bankers spend the least amount of time. 

    Do It!

    Do it before your examiner decides to make an example out of you.

    You've got to fix this, and when you do you'll find that the 3 biggest reasons that your IRR results aren't what you want are:

    1. Your deposit assumptions are generic (NOT bank specific).
    2. You don't adequately calculate and document statistically significant bank-specific assumptions even if you try to develop them.
    3. You don't regularly update, review and revise your deposit assumptions ...and document your assumption review/change process...including annual Board of Directors approval of your assumptions.

    I can hear you now.  You're thinking to yourself "Howard, this is a lot of work!"

    It's not really.  Not with the right process and with a little help.

    If you build or improve your IRR function based on this, I guarantee it will work.  And your relationship with your examiners will improve too.

    Perhaps you'll be like one of our bankers, Richard, who was able to turn a limit busting EVE into confidence inspiring stability.  Or like Wayne, who was able to use this to get his examiners off his bank...while simultaneously improving his ALCO process and results.

    Not bad, right?

    We've been able to consistently improve IRR results and regulatory relationships.  Wouldn't it be nice to do the same at your bank?

    If you'd truly like to know how to:

    • Prioritize your ALCO tasks
    • Be in the top 10% of bankers mastering IRR
    • Discover how to effectively command your key IRR inputs

    You're going to love our short video trainings.  I've made them just for you.

    Simply click here to get started.



    Bank EVE Blame Game: Can 89% of Bankers Be Wrong?

    They say a picture's worth 1,000 words.  Take a look at this one that shows the rates-up 200 basis point economic value of equity (EVE) performance for all 6,240 FDIC-insured banks nationwide as of Dec 2015.


    What we see is that 89% of banks show declining EVE in a modest 200 bp rate shock scenario.  Now of course some of these results are very minor EVE decreases, but OVER HALF of these banks saw modeled EVE decline MORE THAN 15%.

    In fact the only positive spin we can put on this performance is that 89.3% is actually an improvement!  

    So, how did we get here?  What's changed since 2011?

    The "good news", if you will, is that this EVE profile shift is completely explainable by changes in banking structure and strategy over the past few years.  Here's what I mean:

    9 out of 10 banks (notice a familiar statistic here?) reacted to the low rate environment by driving down their COF while reaching for higher yields to help maintain and/or stabilize their net interest margin.

    The 2 main ways that this happened were:

    1. Interest bearing liabilities (FHLB advances and time deposits) were reduced while NMDAs were increased.
    2. Longer term assets increased (both floored assets that will be slow to reprice and actual extensions).

    This is really textbook IRR 101 material.  Longer repricing assets combined with quicker repricing liabilities result in increased interest rate risk, especially EVE.  That's the "bad news", and that's why the chart above has become so lopsided.

    So, as a banker, what do you do?  If you implement standard A/L prescriptions (shorten assets, add long liabilities) you immediately reduce earnings and further decrease your margin.  What's left?

    Bankers are in a Catch-22 situation.  Short NMDA average life assumptions mean bad EVE results, while longer NMDA average life assumptions can't just be plucked out of thin air.

    The best solution is to extend the average life of your NMDA deposit assumptions, but to do that (and have your examiner approve) definitely requires a statistically significant deposit study.



    3 Reasons Bank Examiners Hate Your Best IRR Strategy

    We all know that building up your nonmaturity deposit accounts is your best interest rate risk strategy.  Likely it's your most profitable strategy too.  

    After all, NMDAs are low (sometimes no) cost, can lead to other relationship transactions and can generate fee income.  Let's see you try that with wholesale funds.

    The only problem is that bank examiners hate NMDAs.  OK, hate might be too strong of a word.  They'd never say that, but actions speak louder than words, especially when examiners are concerned.

    Here's why your examiners hate NMDAs:

    • NMDAs are at historically high % versus time deposits.

    Just look at this FDIC chart.  That's why your examiner is focused here.  These trends worry them.  More correctly, the likliehood of these trends reversing worry them.


    • NMDAs can't be controlled like other funding.

    Think about it.  NMDAs are the only items on the balance sheet where you don't have a contractual maturity or rate schedule.  If NMDAs are short maturities, your bank automatically models as more liability sensitive.  If long, you model as more asset sensitive.  Change one assumption and you flip your bank's IRR profile on its head.

    • NMDAs must be estimated.

    This is where the problem really lies.  Because if your examiner is confronted with something that demands judgement, that you can't just "tick and tie", then they start to get a bit nervous.  And if that "something" is growing in importance, like NMDAs are, they practically break out in  a cold sweat.

    What we're really saying here is that your examiners don't understand your NMDAs as well as they do other liabilites.  And when examiners don't understand something, it gets lots of regulatory attention at exam time.

    Think about it.  How did they treat things they didn't understand in the past?  Things like CRE, concentrations, liquidity, trust preferred, bankers' banks, brokered deposits, CMOs to name a few.

    What they did was put them under the microscope, made you add additional analysis, made you track them in a more detailed way, and made you model the results. And that's exactly what's happening right now.

    It's no longer good enough to use generic or default assumptions, even if they work well in your IRR model.  No, now you need a deposit study.  That's why every bank needs a deposit study.

    Because if you're relying on your opinion or for your deposit assumptions, your examiner can always dispute them.  But if you have a statistically significant deposit study they can't really argue with your proven statistics.

    Popular IRR Models Rely on NMDA Method Declared Insufficient By FDIC...Does Yours?

    Do you know the best way to avoid regulatory criticism?  

    It's a simple answer really...Just do what your regulator tells you to do, and stop doing what he tells you not to do.  

    If there's anything that will get your regulator all lathered up it's when he tells you what NOT to do and you do it anyway.

    In fact, the only real problem is keeping up with the rapidly changing communications from the regulators.  Unfortunately, "ignorance of the law" is no more a defense with your regulators than it is in the courts.

    Well I'm going to make your job just a little bit easier by showing you an easy-to-miss bit of oh-so-simple regulatory guidance that casts doubts on the non-maturity deposit account (NMDA) modeling process used at many community banks...

    And it's actually built into many common or popular community bank IRR models.

    It's called the retention method.  You might see it referred to as the closed accounts method, or the "deposit age" method.  

    It can even go by a number of other names, but here's how you'll know you're looking at a regulatory problem...the calculation of your NMDA deposit decay rate, duration or average life is based directly or indirectly on the number of accounts remaining open or closed since a starting date.

    And the FDIC says it's "insufficient".


    "Number of accounts" is the giveaway phrase that lets you know your bank IRR is a walking, talking regulatory timebomb.  

    There's even a variant where the model uses account balances in dollars, but only to determine the weighted average account open time.  And that's just as wrong as using closed accounts themselves.

    So what's a community banker to do?

    • Check your NMDA assumptions in your IRR model without delay.
    • Stop using retention or closed accounts methods.
    • Change from a "backward looking" longevity method to a "forward looking" balance decay based method.
    • Let me know if you have NMDA deposit study questions.

    You are calculating your own bank specific non-maturity deposit assumptions, aren't you?

    Please don't delay addressing this issue.  Bank specific assumptions are a very hot topic right now and your regulator only has so much patience in dealing with willful guidance violations.

    Ready to get started?  



    Why Your Regulator Wants a Deposit Study and How You Know

    There are really only 2 kinds of banks right now...those the regulators have already told to get a deposit study and those they are going to tell to get a deposit study soon. 
    Here's what they want you to do:
    1) Produce statistically significant quantitative studies that calculate your bank's specific demonstrated deposit behaviors.
    2) Adjust these numerical results for qualitative factors such as surge deposits.
    3) Document your results in a way that fully supports these most important IRR assumptions.
    Here's why they are concerned: 
    Time deposits are at a 15 yr low while NMDAs are at a 15yr high.  They believe when rates turn these relationships could well reverse.  I've attached an FDIC graph below on these deposit trends.
    OCC specifically has called out banks on the need to calculate, produce, and document bank specific assumptions, particularly deposit assumptions.  Here are a few references.
    FAQs on Interest Rate Risk Management
    The final 2 questions (on page 10) are the only questions related to assumptions and both refer to NMDA assumptions.  I've replicated them below...
    11. Can an institution use industry estimates for non-maturity-deposit (NMD) decay
    Answer: Institutions should use assumptions that reflect the institution’s profile and
    activities and generally avoid reliance on industry estimates or default vendor assumptions.
    Some institutions, however, have difficultly measuring decay rates on NMDs because of
    limitations on their systems’ ability to provide necessary data, acquisitions or mergers, or
    possibly a lack of technical expertise. Industry averages provide an approximation but may
    not be a suitable estimate in every case. For example, customer types and behaviors are
    inconsistent across geographic areas and are likely to produce very different deposit decay
    rates from one institution to another. Industry estimates should be a starting point until
    sufficient internal data sets can be developed. An institution can contract with an outside
    vendor to assist with this process if necessary. For any key assumptions, back-testing
    should be performed to determine whether assumption estimates are reasonable.

    12. Regarding deposit decay-rate assumptions, what are some examples of a “market
    environment in which customer behaviors may not reflect long-term economic
    Answer: Management should carefully consider deposit and NMD decay-rate assumptions,
    particularly when customer behaviors change during periods of stress as well as external
    factors that may influence that behavior. For example, customers’ flight to quality (insured
    deposits) during times of stress might influence NMD decay rates. Additionally, the
    deterrence value of prepayment penalties during times of near-zero interest rates (penalty
    becomes negligible) might influence time-deposit decay rates. Similar considerations
    should be given to other key rate drivers and prepayment assumptions used in the IRR

    Even more recently, the OCC Semiannual Risk Perspective Fall 2014 hits these points again.  Here's the link:
    Pages 34 - 37 concern IRR and say...
    Bottom of page 34:
    "The IRR data show a wide range of practice for NMD assumptions. The diversity of the data indicates
    unique funding profiles and stressors, and different customer types and behaviors across geographies
    and depositor balances. NMD deposit assumptions are a key component of IRR measurements and a
    driver of earnings and economic capital exposures. Accordingly, it is important that banks not rely on
    external proxies and instead use assumptions that reflect the bank’s unique profile in order to identify
    risk properly."

    Middle of page 35:
    "Banks reported a wide range of expected NMD
    repricing assumptions for a 100 bp change in interest rates (see figure 29). For example, the median
    money market deposit account (MMDA) repricing rate was 40 percent. This indicates that for an
    increase in interest rates of 100 bps, the majority of banks expect MMDAs to reprice upward 40 bps.
    Repricing assumptions, especially in MMDA-related accounts, vary widely, and should be analyzed
    carefully to ensure the sensitivity estimates appropriately reflect realistic expectations.
    Lower half of Page 36:
    "Banks reported expected decay assumptions for six different deposit categories. The decay rate
    estimates the percentage of an account that will “run-off” or move out of a particular deposit product
    for a given rate change. The decay rates reported by banks are, like the banks' reported repricing rates,
    contingent on multiple factors. Deposits that are more volatile (e.g., MMDA and High Yield MMDA),
    show higher decay rates than more stable savings accounts (see figure 31). Banks reported expected
    decay rates over the full range of possibilities (to 100 percent decay) for MMDA accounts. The OCC
    did not collect data indicating whether the decay volume leaves the banks or moves into different
    deposit categories as a part of this analysis. The wide range of decay rate assumptions should be
    analyzed carefully to ensure the sensitivity estimates appropriately reflect realistic expectations.
    Final paragraph on Page 37:
    "Outliers in reported exposures and NMD assumptions may indicate diversity in balance sheet profiles
    or unrealistic or incorrect modeling assumptions. The OCC reminds banks of the need to perform
    sensitivity analysis of NMD assumptions to identify the potential impact of depositor instability.
    Testing the sensitivity of existing assumptions by applying subtle or significant variations to the
    repricing or decay rates may be used to analyze the potential impact on capital and earnings if
    depositors are less stable, or more price sensitive, than expected
    Please let me know if you have any questions.  Thanks.

    How We Reduce Reported EVE Risk Up To 30%... (or More!)

    DepositBoxThis is Part 1 of a 3-part series on the benefits of getting your own deposit study:

    Part 1 - [You Are Here] - How We Reduced Reported EVE Risk Up to 30%...(or More!)

    Part 2 - 3 Steps to Time Bucket Your Deposit Average Life

    Part 3 - Get Better Deposit Study Results...With Less Data

    How would you like to turn this EVE profile...


    ...Into this EVE profile... 


    ...All without changing your balance sheet?

    Here's the thing...

    Most of the criticism and advice you've been getting about your EVE risk is DEAD WRONG.

    I know this because I calculate interest rate risk statistics (including EVE) for thousands of banks nationwide (in fact, for EVERY FDIC-insured bank)... and I test EVERYTHING!

    And I've uncovered the quickest and easiest method to cut your reported EVE risk up to 30% or more!

    Here's my disclaimer:  I obviously can't promise that you will get these results at your bank.  Your results will vary due to a multitude of factors.

    But I owe it to you to tell you about my discovery.

    And you owe it to your bank to look into this strategy right away.

    I started off with all the traditional methods to reduce EVE.  You know...shortening my asset repricing and lengthening liabilities.

    But the problem was that everything I did to reduce EVE also cut earnings and margin.  And in today's environment that's simply not acceptable.

    So I started experimenting with other methods.

    In this article, I'm going to reveal the method I used to achieve up to 30% and greater reductions in reported EVE risk for community banks nationwide...Without changing the balance sheet.

    This is the same system I teach in much greater depth in my deposit study video series.  If you have any significant nonmaturity deposit account (NMDA) balances, you will definitely want to be part of this training because you stand to benefit the most.

    As I mentioned, I started reducing EVE the way the so-called gurus teach...it didn't work.  Our margin and earnings were crushed.

    So I started breaking their rules.  I started testing.

    In the end, I developed my own system.

    Here are six ways I broke the rules and transformed EVE reduction into a quick and easy endeavor.

    1)  I Listened to Bank Regulators

    Banking is a heavily regulated business and I treat it as a regulated business.  That means spending time reading and understanding what our regulators are telling us.

    And the only thing they're talking about as much as EVE are bank-specific assumptions...particularly NMDA assumptions like decay and beta.  For example, these comments don't leave a lot of doubt about whether or not your regulator is focused on bank-specific deposit assumptions.




    So I decided to kill 2 birds with one stone and combined my search for EVE reduction with cracking the bank-specific deposit assumption code.  And guess what happened?

    I found that almost every bank I examined significantly improved their EVE risk profile (up to 30% risk reduction or more) when they implemented a deposit study and calculated their own bank-specific deposit assumptions.

    Now, in retrospect, this makes sense.  The reason it works is that most banks have a very short and conservative set of assumptions, especially deposit assumptions.  And that's just fine...until you start to attract some regulatory attention on interest rate risk.  Then it's definitely in your best interests to extend those deposit assumptions if you can document and support the change

    (By the way, I talk more about how the actual extension process plays out in this post about the "3 Steps to Time Bucket Your Average Life"...)

    So when we actually run the numbers, do the math and plot out all the statistics we find that almost every bank can quantitatively, statistically and scientifically support longer and more EVE-friendly NMDA assumptions.

    And, as you'll see in a second, if you follow our model you'll actually get better results and you'll also be doing less work than most.

    Let's see...less work...better results?

    (I talk more about getting better results with less data (and work) in this post  "Get Better Deposit Study Results With Less Data"...)

    First, let's talk about the mistake I made with my deposit study design and how I fixed it...

    2)  I Went "Simplistic"

    You've probably been told that a "complex", "highly detailed" and "sophisticated" deposit study was the best (only?) way to go, right?

    Well I heard the same thing, which is why this was the very first type of deposit study design that I tested when I first launched this project.

    Mountains of data, detailed account transaction histories, complicated statistical techniques focused on tracking and analyzing every individual account...and every individual deposit type.

    But there was just one problem....Well, three problems actually.

    • No one except a PhD could make it work.
    • No community bank had the reams of data and info in just the right formats all clean and neat.
    • The detailed focus actually made the results less useful

    Have you ever heard of the Pareto principle?  You know, the old 80/20 rule.

    It certainly applies here.  I discovered you could get the overwhelming majority of the deposit study benefits from just a small fraction of the work.  That's the beauty of simplicity.

    So I focus on the forest, not the trees.  Here's how...

    I call it my "Core Four".  They're the 4 basic NMDA types that virtually all community banks have, and that our deposit study approach is designed to provide.They are:

    • Non-interest bearing checking
    • Interest bearing checking
    • Money markets
    • Savings

    Now don't turn your nose up at the straightforward approach.  It works, which is the key factor.

    Plus, once you've created the "Core Four" study you know exactly how to extend the study later into more detailed areas, if (and that's a very big "if") the benefits outweigh the extra efforts.

    But get the basics down before you try to do too much.

    So, I have a question for you...

    "Would you rather have a well-documented and supported (complete!) deposit study based on the "Core Four" (which will likely pay big and immediate EVE dividends) or would you rather have an incomplete plan for an expensive study that is overkill for a community bank?"

    Choose your answer carefully, because you may not be able to have both...

    This one was a biggie, but believe it or not this next change had an even bigger impact on my deposit study plans...

    3)  I Didn't Crave Detailed Account Level Deposit History...In Fact I Did the Opposite

    One day I walked into my office and proclaimed that detailed individual account-level deposit studies were now obsolete.  This may sound a little extreme, but I'm not going to continue doing something if it obviously isn't working for community banks.

    Don't get me wrong.  There are some banks who can deliver all the pristine data sets, scrubbed and tidy for statistical gymnastics, and benefit from complicated and detailed individual account level deposit studies.

    It's just that they tend to be big banks (north of $35 billion assets) with huge staffs teeming with number-crunching armies of analysts...And that's NOT who I work with.  Because the reality is...

    Community Banks Don't Need More Complexity

    I'll say it again.  Community banks do NOT need more complexity.

    Instead, what community banks need (and value) is a trusted authority who will organize and aggregate all the GOOD deposit study information that's actually worth reading into one place.  And who will roll up his sleeves, get down and dirty, and get busy helping them make progress.

    And this concept is nothing new.  In fact, it's the exact same value proposition you deliver to your clients every day when you help them get the banking service that's right for them.

    Do you see where I'm going here?  Finding a better way that works for you is what this is all about.

    And here's what I found...Instead of focusing on individual accounts (with all those extra privacy concerns) focus on the entire pool of accounts that makes up each of the "Core Four" line item deposit types.

    Not only is it easier and quicker, but it's a proven technique recommended by your regulators.


    That's right, the approach they recommend is to track balances at "product / account" level.  And that's exactly what you should do.

    I talk more about exactly how we handle the data in this post about how we "Get Better Deposit Study Results...With Less Data"... .

    And you can get all the details on how we put the deposit study together in my deposit study video series, or if you're ready to move forward now and make a commitment to improve your bank's deposit assumptions and IRR results just skip straight to the Deposit Study Planning Session.

    So that covers the first three steps, but the next one gets into how I can be so sure that you can create this exact same result at your bank...

    4)  I Focused on Building Templates

    Here's the biggest secret to guaranteeing your success: STOP reinventing the wheel!

    ReinventWheelCropYou see, I've already figured this out.  We do deposit studies for all sorts, sizes and shapes of community banks nationwide.

    Guess what:  They're really all the same.

    Sure, the numbers differ and the mix varies, but the key steps remain the same.

    So instead of letting you struggle with "What to do next" on your deposit study, I decided to standardize and templatize all of my deposit study steps.

    No need to blindly stumble in the dark when we can quickly and easily use my templates to deliver proven success to you and your bank.

    When you think about it, it's really a no-brainer.

    5)  I Gave My "Secrets" Away...For Free

    It might shock you to hear this but...

    Most community bankers WILL NEVER purchase ANY deposit study solution.

    And that's okay.

    Giving my deposit study approach away for free like this is the best way to reach the largest number of community bankers with this important news.  News that can totally transform their bank, and their relationship with their regulator.

    You see there are really four groups of community bankers to reach with this sort of information:

    1. Those that will read about it and do nothing;
    2. Those that will read about it and try to do it themselves;
    3. Those that will do it themselves but know they need some guidance; and,
    4. Those that don't have time or staff to do it themselves so they want it done for them.

    And the good news is that spreading the word like this helps all 4 of these groups meet their needs.  Because they all need to learn more.

    This 3-part series is far from the last you'll hear about this topic.I'm going to be posting more information, which you can sign up to hear about.

    I'm also planning a book on community bank deposit study techniques, so you'll be able to learn more.

    I have a free deposit study video series that you can signup for right now,.

    And finally, if you're ready to move from learning to doing, you can skip right to my community bank Deposit Study Planning Session if you wish.

    But what about those bankers that don't have the time or staff to do it themselves?  Just email me directly if you want to see just how affordable it can be for me to actually do your deposit study for you.  Quick and painless.

    So you see, we really do have something for everybody when it comes to deposit study training.

    That's the beauty of having a sharing mentality when it comes to "How We Do It".  It's the most effective way to reach the absolute most community bankers and actually get things done.

    6)  I Optimized My Methods for Community Banks

    Maybe you've been told that you need to fit your "square peg" community bank into a big bank complicated "round hole" deposit study.


    We all know that community banks have different cultures, and different needs, than bigger banks.  It just stands to reason that we'll have different deposit study needs as well.

    So I carefully adjusted my templates.  I revised my algorithms.  I tested my templates with community banks of all sizes...from less than $100mm to multi-billion $+ community banks.

    Just so I could be certain that I could say...

    "It Will Work For You."

    You see, if your deposit study approach doesn't fit your bank, then all the time and effort you invest in organizing and laying out your deposit info is a complete waste of time...you're just rearranging the deck chairs on the Titanic, so to speak.

    Even worse, you might lock yourself into an expensive multi-year service that won't even give you what you really want in the first place.

    And it certainly won't let us easily extend your study as you grow more comfortable with the tools and techniques that I deliver.

    But if you follow my approach we'll deliver a complete proven quick and easy deposit study in less than 30 days.  You'll also be prepared when we expand your reach over time...at a significantly reduced expense.

    You see, I understand that it's not enough for you to know that I can create a community bank deposit study.  

    Nor is it enough for you to know that I can create deposit studies for other banks.  It's not even enough for you to know that I can train other bankers to use their own deposit study that I deliver to them.

    What's really important is that you come to learn and understand that...

    ... I can help YOU to quickly and easily obtain a deposit study for your bank.

     There are a lot of articles out there that talk about deposit studies.  My trainings show you how to get your own deposit study...And how to get the right one

    Click below to:

                            Sign up for our deposit study video series.


                           Schedule your Deposit Study Planning Session




    (Photos provided by Chewy734 and  Crispin Semmens )

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