Academic journal article ABA Banking Journal

Deposits & Funding: Game Remains the Same

Academic journal article ABA Banking Journal

Deposits & Funding: Game Remains the Same

Article excerpt

About 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 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 10

What best describes your bank's
overall deposit pricing?

Lead the market   12.2%
Lag the market    17.6%
Meet the market   70.2%

Note: Table made from pie chart.

Exhibit 11

Who is your leading deposit competition?

LENDING COMPETITION

Community banks        54%
Larger banks           40.3
Credit unions          2
Internet lenders       0. … 
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