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Wednesday, August 22, 2018 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 8/15/18 | 1.96 | 2.07 | 2.23 | 2.45 | 2.61 | 2.68 | 2.73 | 2.81 | 2.86 | 2.95 | 3.03 |
| 8/16/18 | 1.96 | 2.07 | 2.24 | 2.45 | 2.63 | 2.70 | 2.75 | 2.82 | 2.87 | 2.95 | 3.03 |
| 8/17/18 | 1.95 | 2.05 | 2.24 | 2.44 | 2.61 | 2.68 | 2.75 | 2.82 | 2.87 | 2.95 | 3.03 |
| 8/20/18 | 1.93 | 2.06 | 2.25 | 2.43 | 2.60 | 2.65 | 2.70 | 2.77 | 2.82 | 2.91 | 2.99 |
| 8/21/18 | 1.94 | 2.08 | 2.25 | 2.45 | 2.61 | 2.67 | 2.73 | 2.80 | 2.85 | 2.93 | 3.00 |
Source: U.S. Department of the Treasury, as of 08/21/2018
Working Up A Deposit Special to WOW Your Retail Customers?
If you haven’t gone through the exercise of calculating the Marginal Cost of this new Special, you could be MISSING a huge opportunity, or possibly MAKING a big mistake. Many banks talk about “marginal cost” but then don’t take the time to understand what it is, or the impact it could have on their overall COF. When analyzing new product offerings, we tend to diminish the impact of our current deposit base, and overstate the success of this new special. But in order to properly understand the impact of any new product offering, it is important to accurately estimate the disintermediation this will have on your current customer base.
Take the following example, the bank below has very few dollars maturing in the 30 month CD product over the next 3 months. They figure that this will be a good spot to offer a WOW special in their market, so they anticipate offering a 2.50% rate for this product. After a careful study of their customer base, they anticipate that 15% of their 12M roll off, and 50% of their 24 month and longer roll off will move to this new special. After accounting for this, they anticipate about $1.8MM in new money will come in to the bank. They decide to “go for it”, without analyzing the total impact of this decision. We have modeled this below:
Take the following example, the bank below has very few dollars maturing in the 30 month CD product over the next 3 months. They figure that this will be a good spot to offer a WOW special in their market, so they anticipate offering a 2.50% rate for this product. After a careful study of their customer base, they anticipate that 15% of their 12M roll off, and 50% of their 24 month and longer roll off will move to this new special. After accounting for this, they anticipate about $1.8MM in new money will come in to the bank. They decide to “go for it”, without analyzing the total impact of this decision. We have modeled this below:
As you can see from the circled numbers above, the true cost of this $1.8MM was $82,053 or 4.49%. So what was the missed opportunity? They could have issued a brokered CD @ 2.59% (True Cost), met their deposit needs and kept their COF relatively stable. AMG has this type of information available to all of our clients. If you think this analysis, and many others, might be valuable to your organization, give us a call. Issuing Brokered CD’s can be a valuable ally to your bank in managing deposit shortfalls, without locking you into long term liabilities that tend to stick around long after the loans they funded have paid off.
Call us if we can help you in any way.
Call us if we can help you in any way.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value