ABA Banking Journal Competitiveness Survey 2008 - (Page S6) Deposits & Funding: Game remains the same A bout 12 years ago, a group of community bankers, gathered for a bank association meeting, talked about funding issues. One veteran present declared that soon the traditional deposit-loan model would be dead, eclipsed by a better way. She predicted that community banks would soon become more like mutual funds blended with mortgage brokers, making business and other loans destined directly for the securitization market, profiting not from spreads but from origination fees and servicing income. With the secondary mortgage market as a Exhibit 10 model, she forecast, community bankers could concentrate on managing customer relationships, and drop many functions that had little to do directly with serving their communities’ needs. Well, that dream died a long time before recent events made “securitization” and “mortgage broker,” for a time, dirty words in many circles. Bankers do have alternatives, but the deposit remains the key to community bank funding. And this, as shown in Exhibit 12, continues, even though the return of deposit insurance premiums have reintroduced an additional cost for raising them. Exhibit 11 >What best describes your bank’s overall deposit pricing? >Who is your leading deposit competition? LENDING COMPETITION Internet banks 1.4% (0.7%) Other 1.6% (0%) Community banks Larger banks Credit unions Internet lenders Other Community banks 53.4% (54.7%) 54% 40.3 2 0.2 3.6 Lead the market 12.2% Lag the market 17.6% Credit unions 11.5% (11.2%) Meet the market 70.2% Larger banks 32.1% (31.9%) BY ASSET SIZE COMMUNITY BANKS Under $500 million $501-$999 million $1 billion-up 52.6% 53.6 23.7 Percentages in parentheses reflect 2007 survey results. Exhibit 12 Exhibit 13 >Has the general return of deposit insurance premiums led to a change in your bank’s funding strategy? Of the banks that said “Yes”: • 90% will make more use of Federal Home Loan Bank funding. • 50% will make more use of repurchase agreements. • Only one in five expects to make more use of securitization (excluding residential mortgage sales). Yes 6.9% Unsure 8.6% >How does your use of brokered deposits and institutional funds compared to five years ago? Down 10.2% We never use them 44.9% BY ASSET SIZE NEVER USE Under $500 million $501-$999 million $1 billion-up 46.2% 43.7 26.3 No 84.6% Stable 14.8% Up 30.1% BY ASSET SIZE UP Under $500 million $501-$999 million $1 billion-up 29.3% 32.4 39.5 S6 MARCH 2008/ABA BANKING JOURNAL Competitiveness Survey 2008
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