<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=815305791870634&amp;ev=PageView&amp;noscript=1">

Echo Partners Community Bank Blog

    Why we get deposits wrong

    [fa icon="clock-o"]} [fa icon="user"] Howard Lothrop [fa icon="folder-open'] deposit profitability, analytics

    Medical students working with microscope at the universityWhy we get deposits wrong.

    If you think about it, deposit quality (and profitability) is determined by 3 critical factors:

    1. Term: How long the deposit is apt to stick around is a key factor in deposit quality and profitability. We take deposits to lend them out so term directly impacts profitability. Since these are non-maturity deposit accounts (NMDAs) we don’t know maturity term with certainty for any particular NMDA. But a deposit study will establish term for each deposit type.
    2. Activity: How many transactions using which delivery channels is a huge factor in deposit profitability. Just think about all the steps involved in processing deposit transactions. Consider the specialized equipment, personnel and IT resources needed. The rule of thumb here is fewer transactions using lower cost channels (online vs branch) means more profit.
    3. Balances: How much deposit volume exists is always important. Funding has to come from somewhere so all things being equal bigger balances are preferable to smaller ones.

    2 of the 3 most important profitability factors (term and activity) are not directly observable.

    That means the only factor you can see with a quick glance is balances.

    No wonder bankers have taken the shortcut to rely on balances. Just don’t stop with the shortcut.

    Do you want to grow your bank profits with little to no risk? Click Here to  Discover How
    Howard Lothrop

    Written by Howard Lothrop

    Subscribe to Email Updates

    Recent Posts