Bank Director’s Study Reveals That Deposit Pricing, Interest Rates and Liquidity Top Bankers’ Concerns
Bank Director, the leading information resource for directors and officers of financial institutions nationwide, released its 2023 Risk Survey, sponsored by Moss Adams LLP. The survey reveals heightened concern by bank leaders around interest rates, liquidity management, credit and consumer risk.
While the survey was fielded in January, concerns about interest rates and liquidity risk became a reality in March, when a run on deposits imperiled several institutions. This led to two sizable bank closures: $209 billion SVB Financial Corp., parent of Silicon Valley Bank, and $110 billion Signature Bank.
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Concerns remain about how the industry will fare in the next economic downturn. Craig Sanders, a partner at Moss Adams, says bankers more frequently wonder if the U.S. will experience a “big R or little r” recession. “If we hit another big recession, what is the consumer impact on their institution?” he says.
On top of interest rates, liquidity and credit concerns, respondents also identify cybersecurity (83%) and compliance (70%) as areas where their worries have increased, but managing the balance sheet has become, by and large, their first priority.
Findings also reveal that deposit pricing (51%) and talent retention (50%) are among the top strategic challenges that organizations face this year.
“Banks managed to weather the rising rate environment in 2022 with little movement in deposit pricing. That tide has been turning,” says Emily McCormick, Bank Director’s vice president of editorial & research. “Along with that challenge, we continue to see community banks fight to compete with larger institutions and other industries for the talent they need to grow their organizations.”
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Key Findings Include:
Deposit Pressures
Asked about what steps they might take to manage liquidity, 73% of executives and directors say they would raise interest rates offered on deposits, and 62% say they would borrow funds from a Federal Home Loan Bank. Less favored options include raising brokered deposits (30%), the use of participation loans (28%), tightening credit standards (22%) and using incentives to entice depositors (20%).
Strategic Challenges Vary
While the majority of respondents identify deposit pricing and/or talent retention as significant strategic challenges, 31% cite slowing credit demand, followed by liquidity management (29%), evolving regulatory and compliance requirements (28%) and CEO or senior management succession (20%).
Continued Vigilance on Cybersecurity
Eighty-nine percent of respondents say their bank has completed a cybersecurity assessment, with most banks using the tool offered by the Federal Financial Institutions Examination Council. Respondents cite detection technology, training for bank staff and internal communications as the most common areas where they have made changes after completing their assessment. Respondents report a median of $250,000 budgeted for cybersecurity expenses.
Stress on Fees
A little over a third (36%) of respondents say their bank has adjusted its fee structure in anticipation of regulatory pressure, while a minority (8%) did so in response to direct prodding by regulators.
Climate Discussions Pick Up
The proportion of bank leaders who say their board discusses climate change at least annually increased over the past year to 21%, from 16% in 2022. Sixty-one percent of respondents say their bank doesn’t focus on environmental, social and governance issues in a comprehensive manner, but the percentage of respondents from public banks that disclose their progress on ESG goals grew to 15%, from 10% last year.
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