The Case for Product Management in Banking

During a recent discussion with a bank CEO and Chief Banking Officer, a fundamental question arose: Why can't we leverage technology to create a smarter business checking account? Instead of the traditional "Analysis Checking" model, which often erodes potential interest earnings through transaction fees, why not design an account that pays interest based on a technology-determined average balance exceeding a certain threshold?

Given that Dodd-Frank permits interest on business checking accounts, this approach seems logical and customer-friendly. For businesses with higher transaction volumes, the average balance required to earn interest would naturally adjust upwards. This is a concept that is both transparent for the customer and operationally straightforward for bank staff. The average balance calculation could even be reset annually or more frequently to reflect actual account activity. Stuck in our historical paradigm, we don't ask ourselves how to create an easier to understand, more efficient, more transparent, and yes, more profitable business checking account.

The primary objection I've encountered? The bank would lose the fee income generated by Analysis Checking. However, a careful analysis might reveal that the lost fee income would be minimal given that we would charge fees if the account was under its interest-bearing threshold. And likely more profitable. 

This conversation sparked another critical challenge: How do banks profitably manage large money market deposit portfolios in a rising interest rate environment?

Consider a scenario with $1 billion in money market deposits. When the Federal Reserve raises rates by 100 basis points, the response isn't uniform. Some depositors are highly price-sensitive and expect their rates to move in lockstep with the Fed or just below. Others are "price-interested," perhaps seeking a beta of 50%, while some simply value the FDIC insurance and branch access for their cash accumulation, exhibiting low price sensitivity.

The core problem is the lack of clarity: We don't know who's who. The current approach often involves waiting for customers to inquire about rate changes. However, with technological advancements and the ease of funds transfer, many customers simply moved their money during the recent Fed tightening without a word.

This situation points to several potential shortcomings:

• Customers in the wrong accounts: Are some customers better suited for savings accounts than money market accounts?
• Subpar onboarding: Are we failing to identify the customer's reasons for opening the account and their sensitivity to rate fluctuations?
• Lack of sophisticated systems: Do we lack the tools to differentiate between price-sensitive, price-interested, and price-disinterested depositors?

The knee-jerk reaction might be to split the difference and proactively raise the money market rate by, say, 75 basis points. While seemingly fair, this could result in a significant $7.5 million reduction in net interest income.

I believe these challenges would be significantly mitigated by fostering a strong product management culture within the bank. This would involve establishing a dedicated head of product management and empowering up-and-coming middle managers with the responsibility for the continuous profit improvement of specific products.

Consider a retail money market product. Imagine assigning the VP or regional manager of the branch network as its product manager, directly accountable for its ongoing profitability. This individual could then actively manage various profit levers:

The product management committee meets quarterly to review trends in their products. They review the drivers to improve the profitability of the personal money market product. Some potential solutions from that meeting:

• Pricing Strategies: Dynamically adjusting rates based on customer segmentation and market conditions.
• Product Features: Introducing tiered interest rates based on balances or relationship status.
• Customer Segmentation: Identifying and targeting specific customer groups with tailored offerings.
• Communication & Marketing: Proactively informing customers of rate changes and highlighting product value.
• Onboarding Process: Implementing robust KYC Q&A to understand customer needs and price sensitivity.
• Process Improvements: To lower the amount of bank resources required to originate and maintain the account and lowering the OpEx per account.

Furthermore, the bank could consider developing new, differentiated money market products – perhaps something like "Money Market-Fort Knox" for price-insensitive customers and "Money Market-Wealth Builder" for those seeking competitive returns. This targeted approach would provide clearer insights into customer preferences and potentially prevent the significant outflow of deposits and decline in average balances experienced during the 2022-23 Fed tightening. Proactive engagement, rather than reactive adjustments based on customer complaints, would foster greater loyalty.

The fundamental hurdle, as I see it, is that many banks don't systematically measure the profitability of individual products. And even when they do, it's uncommon to assign dedicated product managers tasked with driving continuous profit improvement.

Should they? Absolutely.

While my firm offers outsourced product and organizational profitability services to banks, I firmly believe that all banks, particularly those with over $500 million in assets, should embrace this level of reporting, regardless of whether they partner with us. Consider this: a mere one basis point improvement in net interest margin at a $500 million bank translates to an additional $50,000 in net interest income. Scale that up if your financial institution is larger. The potential upside is substantial.

For further discussion on how a product management culture can benefit your institution, please contact Ben Crowley at bcrowley@kafafiangroup.com. 

Bankers: Here's What We Do

I work for The Kafafian Group, a community financial institution consulting firm based in Bethlehem, Pennsylvania. Many of my readers might not know what my firm does, so I want to dedicate this post to the problems we help community bankers solve.

Here is what The Kafafian Group does:

Performance Measurement- We measure a financial institution's line of business and product profitability on an outsourced basis. We feed customer profitability systems. We do this on an outsourced basis, meaning we custom build the model based on how the institution is managed. If line of business profitability, we follow the institution's org chart. If product profitability, we follow their

product list. We do the costing, funds transfer pricing, report building, and education. We have yet to fail setting up a client on their own profitability system. And we've built our own solution because we found other solutions so challenging. We offer an online portal where clients can view their reports down to the general ledger level. And they can download anything they see within the portal for their own analysis and dashboards. If you want the head of commercial lending or retail banking to take ownership of the continuous improvement of their spreads so the bank can improve its net interest margin, you must first measure it. Our competition in this line of business are software solutions providers. But our real competitor is indifference. You no longer have to be indifferent to how well those responsible for deposit or loan generation are also responsible for continuous improvement in deposit or loan spreads.

Contact Ben Crowley if you want this level of accountability at your institution: Benjamin T. Crowley - The Kafafian Group, Inc.

Strategic Planning- Unlike Performance Measurement where there are very few competitors to us, there are many competitors in strategic planning. We bring a team approach to the engagement using our knowledge from our industry experience and other lines of business to benefit clients. We tailor our service to the needs of the client without dogmatic and rigid processes, although we do suggest processes that work. We believe strategic plans should be made with the best possible data, using the best that your management team has to offer in terms of strategic direction. We suggest one-on-one interviews to avoid group think and uncover critical issues that are difficult to determine in groups. We make suggestions based on our experience, both in banking and with the hundreds of financial institutions we have had the honor to serve. We draft your plan based on data, interviews and a group retreat. We guide your institution into creating an operating plan, or the "how" to strategy execution. We develop projections based on what success would look like in plan execution. The plan should identify the institution you strive to become and chart your path to getting there. Without direction, any road is the right road. With a well thought out plan, course modifications can be made with confidence. Resources can be allocated efficiently. And personnel can be hired and developed with successful plan execution in mind. Some financial institutions consider strategic planning a regulatory exercise or look to do it themselves to save money. Is there a more important question than "what do we want to be?" and "how do we intend to differentiate?" An outside facilitator can ensure planning gets done in a disciplined process that gives your financial institution the best opportunity to succeed at serving its stakeholders.

We also perform ancillary services such as an institution's Risk Appetite statement, clarifying the risks the board and management are willing to take in plan execution. We also do Capital Planning, identifying how much capital will be needed for plan execution and capital impacts of various adverse events and how the institution would enhance capital should those events come to pass. We perform 360 strategic alternative reviews, identifying who a financial institution can reasonably purchase and how much they can pay, who would be strategic partner candidates, and who can buy the institution and how much they can pay. We do this unpassionately because knowing this information helps management teams create aspirational plans. We also do regulatory business plans for de novo banks, mutual to stock converting banks, and banks switching charters.

Contact me if you would like to discuss strategic planning or any of our ancillary services: Jeffrey P. Marsico - The Kafafian Group, Inc.

Process Improvement- In every institution we have served with process improvement services we have found onerous processes, inefficient technology utilization, and silos prohibiting a near frictionless employee or customer experience. Most of these engagements result in cost savings as resources are allocated to unneeded processes, or technology can do the job. Most seasoned bankers have been through these types of engagements and have a bad taste about them because overbearing consultants come in and make declarations and pronouncements. Not so with us. We take a partnership approach where we keep supervisors informed every step of the way so there are no surprises. We think the engagement goes smoother and our recommendations more informed if we ask, for example, the head of wire transfer why the system isn't used to its fullest or why the institution is applying belts and suspenders processes to sending a wire. Supervisors may not agree with one of our process improvement recommendations, but they'll know about them before they end up in our report. It is a solemn responsibility that the institution be better situated with scalable processes when we leave from a process improvement engagement than when we started.

Contact Chris Jacobsen if you are considering improving processes for scalability, near frictionless customer and/or employee experiences, and/or cost savings: Christopher Jacobsen - The Kafafian Group, Inc.

Financial Advisory- Whole bank mergers and acquisitions, fee-based lines of business, branch transactions, fairness opinions, valuation services for private financial institutions, 360-degree strategic alternatives analysis, are all part and parcel to our Financial Advisory line of business. One client told us he felt he was getting JPMorgan service from a community financial institution consultancy, a duty we continuously sharpen in a changing environment and a badge we wear with honor. We consider this line of business complementary to our consultancy so we are responsive to client needs without the typical reticence to engage in talks about combining for fear of going down a slippery slope. Once a client determines to pursue a transaction based on the facts of it, we pursue it to achieve success based on the client's definition of success. We put our experience and transaction accomplishments against any in the business. 

Contact Rich Trauger if you are considering a strategic combination or any of our ancillary services: Richard B. Trauger, Jr. - The Kafafian Group, Inc.

Management Advisory- We do a menu of different things based on our individual and collective skill sets that are difficult to categorize but fall under the Management Advisory umbrella. Examples of engagements we are or have executed on: interim executive officer, management assessments, board evaluations, executive coaching, technology implementation, organizational structure, general ledger mapping, data needs and governance, regulatory assistance based on formal orders or memorandums, etc. Our talented staff with over a century of banking and bank consulting experience are drawn upon to successfully complete the engagement to the client's satisfaction. 

Contact Chris Jacobsen if you are considering an engagement that may fall under our expertise to see if we are a fit. Christopher Jacobsen - The Kafafian Group, Inc.

That's it! If you are a client, we sincerely thank you for your trust in us and leveraging our capabilities to improve your financial institution.

If you're thinking of becoming a client, please contact us. We are not pushy salespeople calling you weekly wondering "where are you at?" If we are a fit for your needs, let's roll!

Happy New Year!

~ Jeff

How Will We Fund That Low Rate, Low Covenant Loan?

Emily McCormick's (Bank Director Magazine) most recent Common Threads newsletter post on LinkedIn got me thinking. How did that 5.5%-6% loan, described by Jeff Rose, CEO of Ambank Holdings, get to committee or even make it past the lender?

Banking is one of those businesses that requires bankers to be less stupid than their competitors. And when competitors start funding 6% loans with 5% money, they start pulling those in their competitive eco-system with them. Or they'll lose the loan. At closing, we don't know how well that loan will perform during an economic downturn. But we priced no credit spread into it. Heck, we didn't price cost into it, or interest rate risk, or liquidity risk, or risk-adjusted return on capital. 

So how can such a loan make it past the lender on that sales call?

Culture. As one bank CEO once told me, "you can't believe the improvement in lenders' negotiating ability when you tell them it's ok to lose the loan."

I recently spoke at the ABA Bank Marketing Conference on why product management is greater than product (a chapter in my book, Squared Away). In such a culture, you would have a director of product management, likely the CMO. But the product managers themselves would be sprinkled throughout the bank as close to the product as feasible. So the product manager for, say, the commercial real estate product would be an up-and-coming middle manager in that department. And he/she would be tasked with the continuous profit improvement of the commercial real estate product.

In comes Lender Hotshot wanting to do that 6% deal. If transfer priced at the FHLB blended 4-year borrowing then Hotshot would be assessed a 4.9% cost of funds, generating only 1.1% spread. If the prior quarter's CRE product spread was 3%, then Hotshot's loan would reduce the profitability of the product. If Hotshot went further out on the yield curve and was assessed, say, a 5.3% cost of funds, now he/she would only get a 0.7% spread on that loan. Multiply that by all the hotshots you have out there trying to produce volume.

But if Hotshot is only held accountable for volume, he/she is all good, right? Hotshot sits high on the lender production board.

But if the culture is continuous improvement, and the yardstick is profit, would this be so? If Hotshot was held accountable for the continuous profit improvement of his or her loan portfolio, credit quality, spread growth, would they even consider doing that six percent deal let alone bring it to their boss or a loan committee where committee members would ask "why so thinly priced" or "why the seven-year deal." The unspoken answer: "I have a $25 million production goal and this is what needs to be done to get the deal done." We created this culture.

In the product management culture, it would matter. That sharp SVP of CRE would have an interest in appropriately priced deals. He/she would interact with Hotshot to determine if there are product features that could help get deals done that don't reduce the profitability of the CRE product.

And Hotshot would get their quarterly profitability report, that not only measures their book of business, but also highlights those lenders that are top quartile in terms of profitability, spread growth, profit improvement. Maybe Hotshot will want to be on those lists. Maybe Hotshot is incented to be on those lists. Maybe Hotshot has been given permission to walk away from that six percent deal. Armed with that leverage, maybe they can get a better deal from that borrower. Or at least not hurt the profitability of his/her portfolio, the CRE product, or the bank's net interest margin.

But to get that culture. You have to measure it.

~ Jeff

3 Ideas on Bank Branching

I moderated a strategic discussion at a recent banking conference. In that meeting, the CEO of a community bank said he offsets his branch costs by leasing branches out to unrelated businesses, like a masseuse. I thought he was joking.

He wasn't.

The anxiety community bankers feel about consolidating branches is palpable. What if you are the only bank in town and creating a banking desert? How about if you bank the local municipality? What if one of your directors is the town manager? Will the regulators frown on us closing a branch in a rural and/or low to moderate income town?

In survey after survey, retail and small business customers consider branch location as important in determining where to bank. This gives a lot of anxiety to fintech promoters. "Chime has 12 million accounts!" Failing to mention the average balance per account might get one of those account holders a couple cases of beer and pay the cell phone bill. 

Large banks, who are community banks' most impactful competitors, are consolidating away from low population density areas. Community banks consider branching a differentiator. This will put community banks at a significant disadvantage with pricing, as the direct operating expenses of the branch as a percent of its deposits averaging 90 basis points, according to my firm's profitability outsourcing service.

That's 90 basis points the bank can't pay in interest to depositors that Ally Bank can. How can the community bank compete?

Here are some ideas.

3 Ideas to Improve Branch Performance

1. Lease space to complementary businesses- I'm not sure I would do the massage parlor, but I'm also not sure I wouldn't. We have far more square footage in our branch than today's bank customer demands. The last cohort of branch-heavy transaction customers were forced to use online and mobile during the pandemic, and it makes no sense to design branches to serve that diminishing crowd's needs. Put some investment into partitioning to lease to the local insurance agent, lawyer, or wealth manager. The lease expense could offset branch direct operating costs and could provide the branch with an embedded center-of-influence referral source.

2. Staff with high powered bankers covering two markets- I think if we were brutally honest with ourselves, are our branches staffed with people that are so well known in the towns they serve that they are also the head of the local Rotary, or on the school board? Community banks have been slow to flip the script on the people demanded in branches. Efficient transaction processors or super star business developers and customer advisors? Be honest. What if we staffed with the latter, which would likely cost more (but also should result in greater deposit balances per office), and have that branch team cover two branches. Are there laws that require each branch to have 40 lobby hours and four extra drive through hours? Staff a branch with a manager, assistant manager, and two personal (universal) bankers and have the manager be the king/queen of one of the locations and the assistant branch manager the king/ queen of another. Split the hours. Install an ITM in a man-trap or inner drive thru lane so transactions can be processed when the lobby is closed. Keep your commitment to the town.

3. Proper Measurement- "We have loans there!" "We bank the municipality!" These are objections we hear in the branch consolidation discussion. These are emotional arguments. If you measured branch profitability, you would know which branches do and don't make money. You could allocate residential and commercial loans into the branch in your reporting to answer the question: "With loans added, are we profitable in this location?" Proper management accounting systems could look at branch profitability with loans (market profitability), and without them because branch managers are not responsible for the commercial and residential lending in that town. But we typically don't do it. So branch decisioning degrades to emotional arguments about this or that customer, or how the bank will be perceived if they consolidate that location. How would you be perceived if you starved strategic investments because you are supporting an unprofitable branch? 

Do you think branching serves as a differentiator in your markets? If so, how do you propose improving their overall performance?

~ Jeff

Commercial Real Estate or Business Lending: Which Is Better?

Me: Commercial Real Estate loans are the most profitable product in a community bank's arsenal and have been through various interest rate environments.

Bank Senior Lender: Not when you consider the whole relationship.

True, it is more likely that a traditional business borrower has a full relationship with their bank than a typical commercial real estate (CRE) borrower. In a world of limited resources, which should you dedicate resources to pursue? This was the conversation I had with a senior lender of a client at the Massachusetts Bankers' Association annual convention.

And after that conversation, I sat in my hotel room thinking about the right answer. Since I rely heavily on data, I poured through my firm's product profitability reports that aggregates the answers from all of our clients. What does a "full relationship" mean? I thought, business loan plus a business checking account. The much sought after "operating account." How do these products perform through different interest rate environments?  

The charts below show the pre-tax profits as a percent of the total product portfolio during different rate scenarios compared to the Fed Funds Rate.

So the answer, from a straight pre-tax profit perspective, is commercial real estate in more recent times and a rising rate environment. In the falling rate environment period between the third quarter of 2007 until the fourth quarter of 2008, when the Fed Funds Rate dropped from 5.25% to zero, you can see from the chart that business checking did quite well in the early quarters because of the lag effect of falling rates on the profitability of non-term deposits. Having a Fed Funds Rate of 5.25% bolsters deposit profitability, as the chart demonstrates. By the time the FF hit zero at the end of 2008, CRE was the last product standing. It would have been more profitable if not for the heavy loan loss provisioning as the economy teetered. Zero rates bolsters the value of loan products as funding costs decline.

But what of the relationship? Take a more normal rate scenario at the end of 2018, when FF stood at 2.50%. The math is in the tables below.

All data are from my firm's product profitability database.

CRE still wins. Why? Two reasons, in my opinion: average balance per account, and operating expense per account. Banking is mostly a spread business, and if you are generating the same spread through a $216,732 balance account versus a $589,949 average balance account, as they were in 2018, then the larger balance account wins. Especially if it takes a similar effort to originate and maintain the account.

In spite of these numbers, I agree with my client that the total relationship commercial loan and business checking customer is more valuable. Just not necessarily more profitable. And banks should determine their "why" and set about to change it.

In the above case, there are multiple levers to press. Lever one, increase the average balance of commercial loans to drive greater spread dollars. This could be through industry specialization, focusing on those that carry greater average balances or utilize their lines of credit with greater frequency. It could be through cost by automating decisioning for smaller loans or, for example, using AI to perform annual reviews or do them bi-annually for loans that meet certain criteria. 

Another consideration to improving the profitability of commercial loans is to perform a risk-based equity allocation. I understand this is financial alchemy, but most of our clients allocate more capital to the business loan because it has less reliable collateral. But commercial loans, if analyzed for total risk (not just credit risk), also are typically less risky for interest rate and liquidity risks. A bank that takes a complete view of the risk and therefore the equity needed to support each product type might determine that a commercial loan might require less capital than a CRE loan. 

Deposit profitability suffers in a zero rate environment because we are simply not generating enough spread to cover costs. But in a more normalized environment, such as 4Q18, it was profitable and profits were trending better. The pre-tax ROA might not look great. Because there is little credit risk to the product it requires little equity to account for interest rate, liquidity, and operational risk. This creates a stellar PT ROE, the best of the three products measured here.

So even though CRE remains the most profitable product to a community bank, it is not necessarily the most valuable. But we have work to do.

~ Jeff

Bankers: Just Do It!

"That's all fine and good, but if your bank doesn't do it or the reporting doesn't get to the front line, how can we improve?"

~ Montana Bankers' Association Executive Development Program Student

Sing from the same sheet of music. Row in the same direction. Everyone should be on the same page. 

Do we really want this? 

I'm finishing my annual tour of the West teaching bank profitability as part of various states' Executive Development Programs. Students are typically mid-level and have high potential. As part of that class, we drill down from "top-of-the-house" financial metrics, such as ROA, Net Interest Margin, Efficiency Ratio, to the most granular numbers, such as the ROE hurdle rate of a customer relationship.

Few have access to information at the line of business, product, or relationship level. Branch managers were unaware of their P&L, lenders were unaware of the ROE of their portfolio. And for me... disappointment.

Because if we want everyone from the Board Room to the customer contact person to "sing from the same sheet of music", why on earth do we have executive incentives tied to Return on Equity but hold lenders accountable for loan volume? It is inconsistent. In fact, it incents lenders to work against your ROE, promoting larger, thinly priced deals without regard for structure, duration, or capital needed to support the loan. It is the antithesis of "rowing in the same direction."

Imagine, holding lenders accountable for the continuous pre-tax profit and ROE improvement of their loan book, like the table below.

We either: don't do this (most likely), or do this but allow naysayers to poke holes into the art part of management reporting because they don't look particularly good (lack of leadership), or do this and keep it bottled up in the executive suite (nice to know). I realize my firm has self-interest in the first reason because we do this on an outsourced basis for financial institutions. But that aside, everyone should do this! Imagine the behavioral changes this would foster. Behaviors we now try to control with incentive schemes to offset the unintended negative consequences of incenting on volume. 

I recently wrote about Branch Profitability in Practice, so I won't belabor the point on holding branches accountable for continuous profit improvement.  A bank CEO recently asked me if I thought using branch pre-tax profit rankings amongst all of his bank's branches would be an incentive that is consistent with the bank's strategy. Knowing the CEO's passion about being a superior financial performer, of course it would! His top quartile branches in pre-tax profit should receive a greater bonus pool than his bottom quartile. Again, this bank has the luxury to do this, because they measure profitability of their branches. Those that don't use deposit growth, or net new accounts, or some other metric that's easy to get out of their core but may not be consistent with strategy.

Don't leave support centers in the lurch. If you incent your Compliance Department with no audit exceptions, should it be a surprise that it was next to impossible to get online account opening off of the ground when branchless banks have been doing it for a decade? How about incenting them on how quickly audit exceptions are cured? Think of the cultural change.

There are ways to incent other support centers to row in the same direction as strategy. If the executive team is incented on being efficient compared to peer, wouldn't it be consistent to incent the Loan Servicing Department on their operating expense to average loans? That combined with loans serviced per Loan Servicing FTE would make for a transparent incentive that has that Department singing from the same sheet of music as the overall bank.

I think I've thrown enough management bromides at you.

We continue to talk about implementing the solutions to serve our most valuable customers without having any idea who the most valuable customers are. Imagine if the lender had 50 relationships, 10 over his/her ROE hurdle rate (white glove service), 20 hovering at or under the hurdle rate (take action to get them over it), and 20 are far under the hurdle rate (efficiently serve them). But we don't do it.

Imagine if the branch gave the best service to those customers most valuable to that branch. If only they knew who they were. Maybe we should.

Instead of accepting how we currently do it, perhaps we should do it like it should be done. In a changing financial world full of shiny objects and the need for focus, we should know the profit trend of the residential lending department, our commercial lenders, our branches, and our most valuable customers. How else would we know they are the most profitable?

Stop accepting incentives not consistent with strategy. Don't leave profitability behind in your data journey. 

Just Do It!  

~ Jeff

Guest Post: Financial Markets and Economic Update by Dorothy Jaworski

Winter Squalls

It’s mid-February and I’m watching a snow squall outside, reminding me that it can be bright and sunny one moment and turbulent the next.  As we try to navigate our way through this volatile time in the markets and in the economy, we seem to get surprised almost daily by large moves in the stock markets, already in correction territory, in the bond markets with rapid interest rate increases, in the highest inflation in 40 years, and in the tense situation surrounding Russia and Ukraine.  And I don’t mean to sound downbeat, but the Federal Reserve is about to raise interest rates amid an economy that is already showing cracks.

The economy seems to be slowing, despite glowing reports like the +6.9% growth in real GDP in the fourth quarter, strong payroll growth in January with the unemployment rate at 4%, and inventory building that could be the first step in solving supply chain issues.  In fact, inventories accounted for +5.0% of the +6.9% GDP growth, leaving only +1.9% in real final sales, which is very weak compared to +8% to +9% in the first two quarters of 2021.  Many businesses are seeing labor shortages, as we are still several million payrolls short of where we were in early 2020.  Inflation may be a large culprit in slowing growth as people cut back on discretionary items to be able to afford the necessities of life - food, gas, electricity, etc.

Stock and bond market volatilities are also seeing winter squalls and are sending messages about shifting investor sentiments about risk.  The Fed is about to embark on another tightening campaign and will raise short-term interest rates starting in March and will likely make moves faster than most investors expect.  They will have ended their bond purchase program and will shift in a few months to letting their massive assets (currently close to $9 trillion) begin to run off.  Investors have seen this movie before and are fearful of recession in 2023 or 2024.  Credit spreads have begun to widen.  At the same time as Fed tightening, the fiscal policy of handing out “free money” has apparently ended and the consequential explosion of demand will abate.  They have to stop; our Treasury debt is massive at over $30 trillion.  People know the “free money” and easy Fed policy were certainly not “free” and they are paying the price with inflation.

Interest rates have risen dramatically since the beginning of 2022, with the 2 year Treasury up .76% and the 10 year Treasury up .42%.  With inflation so high, we have negative real yields, which means over time good returns on investment are difficult to attain, so we may see cuts in business investment.  Interest rates also seem distorted compared to equity returns, with the 10 year Treasury at 1.92% and the S&P 500 forward dividend yield at 1.57%.  Shouldn’t these be the other way around?  As rates have risen, the yield curve has flattened, with long-term points of it inverted (20 year and 30 year).  Flat and inverted yield curves are not a good sign before the Fed even raises rates once.

As mentioned earlier, consumer spending likely will slow as excess demand fades.  The old misery index, defined as unemployment plus CPI inflation, tells the story of everyday living.  The index is currently at 11.5% in January (4% plus 7.5%), which is the highest since 10.4% in May, 2012, but not near the all-time high of 22.0% in June, 1980.  Oil is above $90 per barrel and gas prices are above $3.80 per gallon.  Consumers may reach a “tipping point” where they cut spending dramatically because of their anger at energy prices getting too high.

Finally, the index of leading economic indicators fell by -.3% in January, which was the first monthly decline since the beginning of 2021.  It portends slowing growth six to nine months from now.  Fed policy also works with a lag of six to nine months.  The end of 2022 could be very interesting from all angles, including the federal mid-term elections, and may still be full of winter squalls.

 

Real GDP

We just experienced one of our strongest GDP growth quarters, with real GDP at +6.9% in the fourth quarter of 2021.  Inventory building accounted for the vast majority of that growth, or +5.0%.  Real final sales grew only +1.9%, which is weak, and followed only +.1% in the third quarter.  GDP for all of 2021 was +5.7%, following a year of decline in 2020 of -3.4% due to Covid-19 lockdowns.

Too much stimulus from the federal government drove demand too high in 2021.  Nominal GDP was +10.6% in the first quarter and grew to +13.9% in the fourth quarter as consumers shifted to buying goods rather than services, and supplies could not keep up.  We’ve heard all about the supply chain issues - from manufacturing to distribution- from cargo ships to trucking.  The federal stimulus also drove our national debt levels to over $30 trillion, or 123.4% of GDP.  As we learned during the expansionary decade of 2010 to 2020, GDP greater than 90% for several years will lower GDP by one-third.  Growth only averaged +2.2% during that time, albeit with the bonus of low inflation.

Consumer spending, which represents about two-thirds of the economy, is already weakening as excess demand fades.  Consumer confidence is at relatively low levels, mostly attributed to the inflation shock.  Prospects for growth this year are decent at +3.8% GDP and most estimates project lower growth of +2.5% in 2023, which is back to the lower equilibrium growth rate of just over 2%.  Can the Fed carefully engineer the slowing of growth without risking recession?  We shall see how aggressive their tightening campaign is.

 

Inflation

Oh, the monster!  Oh, the misery!  We all hate inflation.  The prices of just about everything that matters to us are rising- food, energy, medical care, housing and rent, new and used cars, electricity, clothing…the list can go on.  The CPI started 2021 at +1.4% to +1.7%, rose to +5.4% by mid-year, and ended December at +7.3%.  January rose again to +7.5%.  Inflation has eroded spending power with real incomes dropping -4% by the end of 2021, even though wages were rising +4.5% year-over-year.  The Fed started out saying inflation was “transitory” but had to admit later it was “persistent.”  Now we will see if the Fed can keep it from becoming “sustained,” with wage inflation from tight labor markets filtering into the prices of all goods and services. 

Inventories of existing homes has been extremely tight, at 1.6 months’ worth of sales in January, driving recent year-over-year prices on homes up +17.5% to +18.5%.  Higher mortgage rates will undoubtedly reduce demand, with 30 year mortgage rates now above 4% reducing affordability.  CoreLogic expects price increases to decline to +3% to +10% during 2022.

We scream at how bad inflation is when it is at its worst.  There are some clues that inflation may stop rising or recede soon, as supply chains get repaired and more goods flow.  We saw inventory building of a huge scale in the fourth quarter, so a surplus of goods, at a time when demand is declining, is not a prescription for higher prices.  Backlogs are declining in a sign that goods orders are being met.  The flood of government stimulus has faded and the declining budget deficit to GDP, from 5% in 2020 to less than 1% now, points to lower inflation in the year ahead.

Productivity has been on the rise, with capital investment in technology and machines, and may serve to keep unit labor costs in check and profit margins stable.  The dollar has been strong, keeping import prices lower than they otherwise would have been.

Inflationary expectations built into the Treasury market show inflation declining over time:  2 years at 3.55%, 5 years at 2.93%, and 10 years at 2.50%.  if the markets thought inflation would be 7% or higher, yields would already be there.  Even Larry Summers, one of our nation’s biggest inflation hawks, thinks CPI will fall back some to 4% this year.

 

Supply Chains and Labor Shortages

They are connected.  The huge increase in demand exposed the flaws in our systems.  Delivery issues, especially from ocean freight and port back-ups, left many manufacturers short of goods to run production lines and store shelves were left bare.  Labor shortages also played a key role.  Spikes in new Covid-19 variants led to record high employee absences.  But workers are still leaving the labor force from the Great Resignation, retirements, child care issues or costs, burnout and work-life balance, or starting their own small businesses. 

The unemployment rate is down to 4%, but we are only at 87% of pre-pandemic worker levels and are missing 2.9 million people.  The pool of available workers is at 12.217 million in January, which is 2 million higher than in early 2020.  Yet, mysteriously, we are still short workers. 

 

The Fed

We are entering another cycle of Fed tightening.  They will be raising the Fed Funds rate starting in March and are likely to raise it a total of four to five times (.25% each) by the end of 2022.  They met their objective of getting unemployment back to full employment, estimated at 3.5% to 4.3%, and now they must tighten against the highest inflation in 40 years of +7.5% and the tightest labor market in terms of wages increases in a decade, at +5.7% in January.

Market interest rates have risen in anticipation of Fed tightening.  In just six weeks, the 2 year Treasury is up .76%, the 5 year is up .40% and the 10 year is up .42%.  Both 15 and 30 year mortgage rates are up even more at +.80%.  The Fed is very happy to have the markets do some of their job for them.   Remember that Fed policy operates with a lag.  By the end of 2022, we should see the economy slowing and hopefully inflation receding.

Finally, all of you Phillips Curvers are rejoicing right now.  After 10 years of warning us that low unemployment leads to high inflation, you have finally gotten your moment of Schadenfreude!  Enjoy and thanks for reading!

DJ  02/19/22

Dorothy Jaworski has worked at large and small banks for over 30 years; much of that time has been spent in investment portfolio management, risk management, and financial analysis. Dorothy has been with Penn Community Bank and its predecessor since November, 2004. She is the author of Just Another Good Soldier, and Honoring Stephen Jaworski, which details the 11th Infantry Regiment's WWII crossing of the Moselle River where her uncle, Pfc. Stephen W. Jaworski, gave his last full measure of devotion.

She also was our guest on my firm's January 2022 podcast, This Month in Banking. To listen to that episode on interest rates and the economy, click here or go to wherever you get your podcasts.

Row in the Same Direction: Branch Profitability in Practice

Chris Nichols from Southstate Bank Correspondent Bank Division recently wrote an excellent piece about branch profitability, a subject near and dear to my heart because it is one of our core competencies at my firm, The Kafafian Group, Inc.

In that piece, titled Branch Profitability in 7 Steps Using Data, Step 1 was start with Potential Branch Profitability. In that step, Chris made the case for calculating relative profitability to the competition using hypotheticals. And I thought, what if we didn't use hypotheticals? We used our actual profitability metrics, synced them up with our strategic plan, and calculated our journey from current profitability to desired profitability?

This is a tall order because in my experience, branch profitability is not widely calculated, and certainly not widely used in creating the operating discipline needed to deliver to the bank's stakeholders. Instead, it is more common to use easily available metrics that we can draw from our general ledger, core processor, or other systems. We measure aggregate deposit growth, period over period expenses, and number of accounts opened.

But what if this motivates behavior that is not consistent with strategy? For example, growing aggregate deposits might be aligned with overall asset growth objectives, but at what cost? It's a sure way to have the un-empowered branch manager calling the regional manager for rate exceptions to win new money or keep money at the bank. 

I rarely hear bankers state as a strategic objective to grow assets, loans, or deposits at any cost. But that is certainly what you are motivating branch managers to do if you use deposit growth as one of their strategic goals.

Instead, what if the bank aspires to be the number one business bank in their markets? And a strategic objective is to achieve top quartile cost of funds with an emphasis on growing business deposits?

How does that translate to the branch manager? What's their plan? 

I'm currently reading Extreme Ownership, How U.S. Navy SEALS Lead and Win, by Jocko Willink and Lief Babin. This book was given to me by a banker, by the way. In the book, the authors say this about empowering junior leaders, like branch managers (parentheticals are mine):

"Teams must be broken down into manageable elements of four to five operators (i.e. a branch), with a clearly designated leader (i.e. a branch manager). Those leaders must understand the overall mission, and the ultimate goal of that mission. Junior leaders must be empowered to make decisions on key tasks necessary to accomplish that mission in the most effective and efficient manner possible. Teams within teams (i.e. retail/small business banking-regionals-branches) are organized for maximum effectiveness, with leaders who have clearly delineated responsibilities. Every tactical-level team leader must understand not just what to do but why they are doing it."

So what of that Schmidlap National Bank plan: Vision-Be the number one business bank in our markets. Strategic Objective-Achieve top quartile cost of funds with an emphasis on growing business deposits.

The head of retail, or the regional manager if a larger bank, can set the strategic goal for the Elm Street Branch (My Branch in the below chart) to achieve top quartile deposit spread in the branch network. 

Deposit spread is a key metric in any worthwhile branch profitability system. Understanding how deposit spread is calculated and how to impact it is easily taught and understood. I wasn't from the Finance function, and I once was a branch manager, and I understand it. In fact, I believe not using branch profitability because we don't think branch managers, regional managers, or even the head of retail/ small business banking will understand it is patronizing. Or quite possibly you've made these reports overly complex. Which is the enemy of effectiveness.

No, I think My Branch's goal of achieving top quartile deposit spread by some future period is specific, measurable, aggressive yet achievable (a quarter of your own branches achieve it), relevant (to the strategic objective), and time based (i.e. a SMART goal). 

After setting the strategic goal, and ensuring the branch manager understands how it is calculated and how to impact it, the regional manager can then empower the branch manager to develop a tactical plan to achieve it. Some may include dependencies, as many of the Chris Nichols' "7 Steps" require Marketing support. This support can be coordinated over the franchise, as in "how will Marketing help our branches achieve their goals?"

But this doesn't mean the branch manager can't highlight tactics to help the branch succeed, such as: 

1. Develop list of businesses within five miles of branch by NAICS code, cross reference with existing branch customers.

2. Focus on the most promising businesses' in industries where our bank can be successful competitively.

3. Perform competitor analysis using Amberoon tool (Step 3 in Chris Nichols article)

4. Leverage bank-developed and curated business-focused content to communicate with businesses identified in (2).

5. Branch manager/assistant branch manager to complete ABA Small Business Banker certification.

6. Implement business calling program as developed/instructed by [Internal training/ external consultant, etc.]

This, of course, is a summary list of strategic initiatives to achieve the goal that emanated from the whole bank's strategic objective to "achieve top quartile cost of funds with an emphasis on growing business deposits."

And if the bank is a learning organization, then each branch is empowered to experiment (within guidelines) to develop what works well, what must be refined, and what doesn't work. If the bank creates appropriate feedback loops, this can exponentially increase the effectiveness of strategic initiatives that are laser-focused on achieving the overall bank strategic objectives and vision. 

It is the very definition of rowing in the same direction. And it creates a culture where branch managers own their role in strategy execution, goal achievement, and the tactics to succeed. 

Have you experienced this level of ownership?

~ Jeff

Notes:

I mentioned that profitability reporting is a core competency of my firm. To learn more, click here. 

And 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. 

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Thank you!

Bankers: Seven Questions to Determine If You Have a Strategic CFO?

Ajit Kambil of the consulting firm Deloitte, in one of their Perspectives articles, asked seven essential questions to determine if the reader was or has a strategic CFO. I thought it provided great insights for Jeff4Banks readers, and I've accompanied the description of the seven questions with how it pertains to banking.

Seven Essential Questions for Strategic CFO's

1. How does your company plan to grow: M&A, organically (that is, by driving new or existing products to new or existing markets), or both? "The first and most straightforward question involves knowing the current strategy: What combination of these growth choices is your company currently committed to? The CFO's role then is to make sure that capital is available at the right cost for these choices to be profitable, and that the company has processes and decision making rules for capital allocation to support that growth." 

J4B Take: Many financial institutions that are large enough to be a buyer include organic growth and M&A in their strategic plans. It is natural to do so in a consolidating industry. And the true strategic CFO will bring ideas to the executive table that efficiently leverages capital to deliver the greatest risk-adjusted return on capital (RAROC).  At this writing, many bank balance sheets are flush with cash. Which could provide an opportunity to put significantly more cash in M&A transactions to stoke earnings accretion. But does your institution have enough capital to put another bank's assets on its books with issuing only 50% of the consideration in stock? The CFO could critically look at the balance sheet of both their institution and likely targets to recommend moves that could lead to a compelling offer to the target while maintaining a strong capital position. That would be extremely beneficial to the executive team trying to grow their balance sheet without having to turn away from acquisition opportunities. 

2. What are the dominant constraints that hold back your company's growth, and how might you overcome them? "The dominant constraints are the issues that prevent a company from reaching its potential. Consider a company with a heavy debt burden that was paying an interest rate more than twice the rates available to its competitors. Here the cost of debt capital was a critical constraint, given that competitors could finance growth through M&A and other strategies much more cheaply. In response, the CFO enabled a sale of a large stake in the company to a strategic investor, rasing capital and relaxing the 'finance constraint.' Other types of constraints include the lack of a needed or key product in the pipeline or simply the mind-set and culture of the company. Of course, some constraints are virtually impossible to overcome. For example, regulations in financial services impose new constraints on banks. Other than finding the efficient ways to comply, CFOs can do virtually nothing to change the regulatory constraint. Still, determining the dominant constraints is the first step for a CFO to take in order to relax or overcome them."

J4B Take: In this low interest rate environment with low loan demand, so many financial institutions issued subordinated debt at their holding companies to either downstream into their banks to support the next leg of growth or leave in the holding company to buy back stock trading at a depressed price. Or both. This debt is usually five years fixed rate, with attractive rates because of the interest rate environment, that flip to floating after the fixed period. How many bank CFOs created a plan to be in a position to redeem this debt once the five year period expires? Because it could serve as a constraint if interest rates rise, which they are likely to do, and we've used up the capital either for buybacks or to support growth. Did we keep the dividend steady so we can accumulate ever more retained earnings? Did we undertake a bankwide process improvement to ensure as we grew the bank achieved positive operating leverage that accelerated earnings and therefore capital? The strategic CFO, as captain of the capital planning ship, should have had a plan in place with multiple options to redeem this debt before it was ever issued.

3. What is the greatest uncertainty facing your company, and what can you do to resolve or navigate it? "Say the company has potential asbestos liability because the chemical was formerly used in some products, and the uncertainty around that liability is constraining the company's share price and keeping it from making aggressive growth plays. That doesn't sound like something a CFO can fix. But what if you were to go to the legal counsel and say, 'Let's figure out what it would cost to settle this potential litigation, and see, given our current cash flows and the low-rate environment, whether it's worth that price to get rid of that uncertainty.' Alternatively, CFOs can ask their finance, planning, and analysis (FP&A organizations to model the consequences of different outcomes, and then decide if they want to insure against risks arising from the uncertainty. Uncertainty can 'freeze' decision-making; CFOs can 'unfreeze' those decisions by gathering information to resolve the uncertainty, instituting a structure to navigate the uncertainty while managing risk through insurance, or developing a step-by-step approach to real-option investment as uncertainty is resolved."

J4B Take: The greatest uncertainty facing community banking is relevance. Change is happening faster than any other time in our careers, requiring quicker action, change implementation, failure recognition, and strategic investment. Yet we fall back on old habits such as submitting budgets that include the strategic investments to drive business model change, and the CFO, after aggregating departmental budgets during "budget season", pushes them back to department managers because they suspect "wish listing." Instead, the strategic CFO evaluates areas of the financial institution that consume operating expense and capital that are not central to strategy or profit generation, and recommends cutting them in order to invest for a long-term future. Don't send the budget back asking managers to sharpen their pencils and cut their wish list. Find the lowest return and least strategically significant areas and make recommendations to "stop doing this, so we can invest in that."

4. What is your greatest area of spend where there is a lot of uncertainty about return? "For example, a CFO of a consumer packaged goods company with a big chunk of spend going to advertising and promotion should ask, 'how can I get greater bang for my buck in my advertising and promotion spend, and how do I make headway on measuring returns from promotions to guide future spending?' Creating clarity and better disciplines on spend are often a source of quick strategic wins." 

J4B Take: I have written on these pages about building discipline and accountabilities around achieving the hoped-for economies of scale from mergers here, and building metrics and trends around achieving pricing advantage for what should result from that brand building budget your marketing executive says you need (read this). The CFO can be critical in taking hard to measure strategic initiatives and boiling them down to "what success would look like" so the management team can track and be accountable to themselves in making those investments pay off.

5. Are your company's financial and growth goals ambitious enough? What would we do differently if the company were an order of magnitude bigger? "Say your company's goal is to double its revenues, from $2 billion to $4 billion, and you're looking at a variety of projects to achieve that growth, but some entail a lot of risk because of the dollars involved. The CFO might look at this challenge and say, 'A $400 million project blowing up is going to do some serious damage to a $2 billion company, but not so much to a $20 billion company. So maybe our ability to invest in future growth is enhanced by increasing our scale not by two times but by 10 times through a series of rollups or acquisitions.' If you bring that option to your CEO and board, you've started a conversation that could be truly game-changing for the company. It is easy to get trapped in the present. But thinking substantively beyond existing constraints and limits can sometimes help identify plays that create dramatically new strategic options." 

J4B Take: I actually have two takes on this. 1) A strategic CFO should calculate and know a bank's "strategy value gap", which is the difference between the present value of the bank's strategic plan and what the bank can reasonably achieve in a sale. Aside from the straight math I just described, you have to add an "option to sell" on top of the present value of your plan because if the management team does not achieve plan objectives then the board still has the option to sell and that option has value. But the difference between that should be relatively small and within a board tolerance level. Calculating and communicating this number will keep a management team aspirational in strategy development, and focused in plan execution. Because a large strategy value gap may cause the board to hand over the keys to a more capable management team (i.e. sell the bank). So the financial and growth goals should be ambitious enough because the CFO knows what "ambitious enough" means. 2) What size must the bank be to make the human, technology, and other infrastructure investments to bridge a strategy value gap and remain relevant to bank stakeholders? That depends on the needed investments. The strategic CFO should be the arbiter of that conversation. Because if it's your investment banker, the size you have to be would be double what you are. No matter what you are. :) 

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6. What could disrupt your company, and what can finance do about it? "This is about envisioning a competitor's move, such as a merger or a new industry entrant that changes the nature of competition or a new technology that dramatically changes product offerings. Again, CFOs can ask if they themselves could use the likely playbook of a competitor to disrupt the industry and also leverage FP&A capabilities to model out disruptive scenarios and help frame responses." 

JFB Take: The market leader in mortgage origination in my home state of Pennsylvania is Quicken. Imagine if in the late 1990s bank CFOs projected a twenty year decline in mortgage market share driven by a piece of technology? Would we have made the investment to have a similar piece of technology and deliver an end-to-end paperless experience if the CFO made the right call or alerted us into making at least some call? We didn't. And we still may not have. We are not good at long-term strategic bets and we may not want to lay this at the feet of the CFO. But strategic CFOs should be running capital plans with "what if" scenarios such as "if we project multi-year declines in mortgage originations, how will we replace that activity, balances, and profit?" Much like they should be asking, and therefore running scenarios, "what if disruptors spark a multi-year decline in retail deposits?" I'd love to hear the head of retail refute or describe how you would replace that funding. But the conversation should start with your strategic CFO what-if testing.

7. What would you like your company to stop doing? "Finally, are there underperforming business units or a part of the company that does not generate required returns, or customers who are not profitable? If there isn't a way to scale the business to increase returns, it may be best to dispose of it and free capital and management resources to grow more high-potential businesses. Similarly, choosing not to serve unprofitable customers or to increase prices to them may increase long-term returns." 

J4B Take:  Many financial institutions evaluate the size they must be to make the investments discussed in "5" above to be relevant to their stakeholders. But what are they doing now that they can stop doing to pay for strategic investments? And when evaluating where to invest, what has the greatest potential to generate profit? Perhaps it's something you are doing now that you want to do 4x more of that is generating excellent ROEs. The where to invest and how to fund it are key questions that the CFO should take the lead in answering.

After reading the seven essential questions for strategic CFOs, and my take as it relates to banking, does your bank have a strategic CFO?

 

~ Jeff

Note: If bankers do not have the management reporting to answer "7" and know which lines of business, products, or customers are delivering the best profit, they should give me a call. My firm does that for you.

And don't forget 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. 

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Hardcover

Thank you!

 

 

Bank Customer Lifetime Value

Who are your target customers? Answer: XYZ

Why are they your target customers? Answer: They are our most profitable customers.

May I see your profitability reports that show this? Answer: *crickets*

Is "most profitable" the right answer? Aside from my skepticism that the financial institution actually calculates who their most profitable customers are. But in doing profitability reporting for decades, I feel comfortable saying that most commercial-focused financial institutions' most profitable customers are commercial real estate investors. Not small mom-and-pop real estate investors. The ones with the big balances.

Targeting them would likely yield a very profitable bank. But would it be a valuable bank? It is highly competitive in the large commercial real estate space. Not only are there community financial institutions chasing that business, but large banks, conduits, insurance companies, loan brokers, etc. The competition is, well, not very "blue ocean" like (compete where the competition isn't). 

I'm not down on commercial real estate. Any balanced balance sheet should have its fair share of investor CRE to boost profits. But to boost value, I ask again, who are your target customers?

In comes what experts deem "lifetime value" (LTV). Can we categorize, and generalize, customer segments to predict what segment delivers the greatest LTV? Because if we consider spot profitability, we should target CRE. It is likely the reason why so many bank balance sheets have concentrations in this product. 

Let's take a doppelganger customer segment: Recent college graduates with high earnings potential. We're not talking philosophy majors here. I already have enough of them fumbling my coffee order. I'm talking the docs, engineers, accountants, cyber security, et al. The customers that SoFi targeted out of the gate.

See the table below for our recent engineering major grad, who is working as a junior engineer for an environmental engineering firm. Four years after becoming our bank's customer, he/she breaks out on his/her own. 

As you can see, the Total LTV in the top table shows a pretty profitable customer, and likely customer segment. But if you look at the spot profitability in Year 1 of the bottom table, our doppelganger customer doesn't look so attractive. Profits actually decrease in years two and three. THIS is why estimating LTV of identifiable customer segments is so important to strategic decision making in financial institutions. Not only must we calculate LTV by segment, but we must also compare to external data to ensure there are enough of these "households" in our markets so we can build critical mass.

There are business models that span the country for their targeted customer segments. In addition to the already mentioned SoFi, Live Oak Bank comes to mind. They started as an SBA shop focused on business segments that were recession proof, like dentists and veterinarians. And searched the entire country for them.

Most of us are geographic focused. But that doesn't mean we shouldn't build our infrastructure: the people, technology, and physical locations, to differentiate ourselves with those customer segments that deliver superior LTV and are in abundant supply in the markets we choose to serve.

Do you calculate LTV?

~ Jeff

And don't forget 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!

Excess Liquidity, Low Rates, and Branching. My Answers to Jeff Davis' Questions

S&P Global Market Intelligence Principal Analyst Nathan Stovall recently interviewed Mercer Capital's Jeff Davis on the Street Talk podcast regarding the thorny banking issues of the liquidity glut, persistently (or perpetually?) low rates, and the branch costs millstone. I highlight Jeff's comments, and offer some solutions in this video blog.

Enjoy!

~ Jeff

Here is the YouTube link to my comments in case the video does not play on your device:

https://youtu.be/8erI7qDMb2g

Street Talk podcast link: 

Excess liquidity, low rates leave banks between a rock and M&A | S&P Global Market Intelligence (spglobal.com)

And don't forget my book: Squared Away-How Can Bankers Succeed as Economic First Responders

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Paperback

Hardcover