Build Your Own Bankers

A colleague is working with a nearby college to develop a curriculum for a banking minor. They asked us to accept interns from the program as we often have summer interns, at least prior to the pandemic. The program is supported by the state banking trade association.

The professor charged with moving the program forward expressed frustration that banks were not providing enough internships nor commitments to hire graduates. Which is strange because in most strategic planning sessions we moderate, talent availability is a threat, and management below senior leadership is often a weakness.

Sure there are entry level positions that are plentiful. If a bank is naïve enough to think that a college graduate would be satisfied with the same position they could have attained without the college investment in time and money. Other than frequent turnover in those roles, there are not many available. Net interest margins are under pressure. Bankers are watching expenses closely so creating positions for entry level college graduates are not on the community bank priority list. And it's not like college kids are sitting in their Money and Banking class sophomore year and thinking, "community banking, yeah, that's what I want to do."

But here is a college where the students are selecting the banking minor. So, yeah, perhaps those students are thinking that way. Yet, as the program now stands, community bankers are still not interested. 

Imagine if we were interested 10 years ago. Would we now have fully developed branch bankers that are capable of calling on small businesses up and down Main Street talking cash flow management, small ticket lending, and inventory turns? Would we have seasoned credit underwriters that are highly productive, technology forward, and able to teach "green" analysts the ropes? Would we have business analysts throughout our bank that maximize the use of our sizable technology investments and asks "why" without answering "we've always done it this way." Would we have commercial lenders without having to shop for them on the street?

But we didn't. And precious few of the people described above are at our bank.

Now it's time to lament about large banks' management training programs. I will pause here to give you your moment...

Now take total ownership of the situation. Think long term. Fix your "next-level management" weakness.

What are the entry level positions of a college graduate with little to no banking experience, even if they had a banking minor in school? Perhaps junior credit analyst, business analyst, assistant branch manager, portfolio manager, or network administrator.

If you're thinking that you don't have these positions at your bank, or you have no openings, think again. There are people occupying seats at your bank that have little chance of moving your bank forward, executing on your strategy, and keeping you relevant. They are "occupying seats" and mashing buttons. And those seats cost more than what you are likely paying that person. They are blocking you from bringing on others that have greater potential to be future leaders. That creates costs that are exponentially more expensive than bringing the new college graduate onboard that might not have a productive position to occupy for six months. 

So bring on the assistant branch manager and assign him/her to your best branch manager's branch, even though an assistant branch manager position doesn't exist. When ready, replace the seat shiner in your network with the new hire. That sends a message to both your go-getters and other seat shiners.  You will constantly look for bankers that can execute your strategy. 

This might seem crass to the humanitarian banker. But our relevance is at stake. And by creating a culture of continuous improvement within your employee base, your are increasing the likelihood that you can save the jobs of everyone else because your bank, with a superior workforce, matters to your stakeholders. 

That seat shiner won't have a job anyway if you're sold. Right?

~ Jeff

Please consider reading my book: Squared Away-How Can Bankers Succeed as Economic First Responders. 

Ten percent of author royalties go to K9sForWarriors.org, who work to bring down the suicide rate among our veterans. 

Kindle

Paperback

Hardcover

Thank you!

Bank Customers Lose Real Money

You worked hard, saved money, and reduced or eliminated debt. You've been conservative, preferring the stability and security of bank deposits versus the gyrations of the market. Now, after forty years of toil and delayed gratification, you're ready for retirement.

If this were 2006, things would be good. The Fed Funds Rate stood at 5.25%, and inflation in check at 2.5%. This means you could get roughly 2.75% real interest from your bank savings account. Your money grew.

Then, boom, the 2008 financial crisis. The Fed immediately dropped Fed Funds to a range of 0% - 0.25%. And at that time, inflation was nearly zero (0.1%), so your real interest was still positive. And since it was a financial crisis, no worries. Things would recover. And thankfully since you were nearing retirement your home wasn't leveraged to the hilt and then some. Sure, your home value declined, but what does that mean to someone with little to no mortgage and isn't in the market to sell? 

Heck, maybe there'll be a reassessment and your real estate taxes will go down.

Taxes go down? See that. I made a funny.

Retiree: That's Not So Funny

To the retiree that prefers the safe haven of FDIC insured deposits held at the local bank that lends it out locally, this is a serious issue. If we use the Fed Funds rate as a proxy for what a saver earns at their bank, the chart below is alarming. 

Source: US Inflation Rate by Year: 1929 - 2023 (thebalance.com)

Things looked good as we entered the 21st century. Sure inflation was relatively high, at least above the Fed's target rate of 2%, at 3.4%. But the Fed Funds rate, as proxy for savings, was 6.5%, a full 3.1% real return. (Note: I checked a few of our strategic planning peer groups to see their cost of deposits at June 30, 2021. One peer average was 36 basis points and the other 37. Although this is higher than the current top guideline of Fed Funds rate of 25 basis points, I feel comfortable using it as a proxy for bank savings rates. Eleven basis points difference to the peer median... c'mon.)

If a saver put $1,000 in a bank savings account on January 1, 2009, less than one month after the Fed dropped the Fed Funds rate to 0%-0.25%, and kept it in that savings account, they would have $1,091 at the end of 2020. That same $1,000, invested in the S&P 500 Index for the same period, would be worth $4,318.

Worse, in 14 of the 21 years from 2000 through 2020, the inflation rate has been higher than the Fed Funds rate. Meaning keeping your money in cash, or at your bank, caused a decrease in your depositors' buying power. 

This caused savers to flee to higher earning assets, driving up the value of those assets. This phenomenon, combined with the Fed increasing its balance sheet from $1 trillion to near $9 trillion since the financial crisis, has kept bond yields low and their prices high. Forcing savers into equities, which has driven markets up. I can't imagine those that seek a safe haven will go into crypto currencies. But never say never.

This is a great environment for borrowers and spenders. Not so much for savers and those that avoid leverage. 

What Say You, Mr. Powell?

And I'm not so sure policy makers have the savers' best interests in mind. The current inflation rate at this writing was 5.3%, well above the Fed's 2% target. Yet they continue to signal that they will keep the Fed Funds rate where it is until 2023. The two Board Governor hawks that are calling to do it sooner are leaving. 

It benefits the federal government to keep rates artificially low because we have $28T of debt to service. That's with a "T". I'm hopeful the Fed makes decisions to promote maximum employment, stable prices, and moderate long-term interest rates. And ignores politician's calls to continue to print money to keep bond yields low so they can keep swiping the national credit card.

But I'm becoming increasingly skeptical that the Fed is remaining faithful to its mission. So as an industry, we might have to solve for the diminishing value of our customers' deposits. It could be part of our higher purpose (Increase economic well-being of savers).

If you have thoughts on solutions, I would love to hear them.

~ Jeff

Please consider reading my book: Squared Away-How Can Bankers Succeed as Economic First Responders. 

Ten percent of author royalties go to K9sForWarriors.org, who work to bring down the suicide rate among our veterans. 

Kindle

Paperback

Hardcover

Thank you!

How to Get Off the Hot Rate Ferris Wheel

I recently spoke at the DCI Annual Users Conference and the ABA Bank Marketing Conference about, among other things, how bankers can get off the the "hot rate" kick. I can think of no reason why a bank would claim the mantel of brand leadership if they must routinely price up deposits or reduce loan yields or structures to get new customers.

As part of the presentations, I had an audience participation segment where attendees suggested how to get off the hot rate addiction and I promised to publish their responses on my blog.

Here were their answers.

How to Get Off the Hot Rate Ferris Wheel

Specialize/Niche- Given by a Midwest banker, the thought process goes that if you're a really good ag lender and understand the needs of the customer and issues facing them, the customer will not put their loan up to multiple bids and dump you for an eighth. Same goes for other niches such as business transition loans, trucking, oil/gas exploration, etc. 

Speed to Close- Given by another Midwest bank CEO, the thought process goes that there is less price sensitivity if you can get to the closing table faster than competitors with as few pain points as possible.

Deep relationships- I suppose this bank marketer used the word deep to emphasize relationships when oftentimes bankers use "relationships" as something they have, yet must be best price to get the business. In other words, they really don't have "deep relationships." The cynic in me thinks instead of deep relationships, this should be actual relationships. But I go with what the banker gave me.

Ideas From My Presentation

Reward Loyalty- Rather than paying the best rates to non-customers to entice them to become customers and then make up the profit difference from your existing customers, why not reward your existing customers to entice them to increase their balances with you? Some do this in terms of special dividends to core deposit customers at the end of the year if the year has been a good one.

Flash Sale to Core Depositors- Along the same lines, give your customers more reasons to bank with you and tell their network to bank with you. Have occasional "blue light specials" to existing core customers as a benefit for their doing business with your bank.

Build relationships- Same as the Deep Relationships above. It's harder to dump your bank for minor rate variations if the customer has an actual relationship with one or more (preferable) of your bankers.

Don't screw your customers- Why torment loyal customers with a 7-month CD promo only to drop it to the lower 6 month rate when it matures because you know 70% of takers will be asleep at the switch. How does that build trust?

Store of Value Vs. Accumulation Accounts- A customer isn't normally 100% price sensitive on all of their accounts. They may be on IRA CD's or their emergency fund account, where they at least will want to cover inflation. But they may not be in their operating account or some special purpose savings accounts where they want the FDIC insurance and efficient transaction processing. Know the difference per customer.

Empower bankers on pricing- This is relating to the Store of Value idea above. It would be very difficult to know institutionally that a particular customer views a particular account as a store of value versus accumulation account. But it would be easier for the banker with the relationship. This implies you allow them to have pricing flexibility, within guardrails of course.

Be part of customers' personal brands- "I gotta have my Starbucks!" "My broker is EF Hutton, and EF Hutton says..." "I'm a member of Lancaster Country Club." If you're brand is worth bragging about to burnish the personal brand of your customers, you don't have to be the best price in town. In fact, being the best price in town might diminish your brand. Like Starbucks going into turnpike rest areas.

Any more ideas on how to get off the hot rate Ferris Wheel?

~ Jeff

Please consider reading my book: Squared Away-How Can Bankers Succeed as Economic First Responders. 

Ten percent of author royalties go to K9sForWarriors.org, who work to bring down the suicide rate among our veterans. 

Kindle

Paperback

Hardcover

Thank you!