The concentration of funds in non-maturity deposits leading into the 2022 rising rate cycle has presented unique opportunities for the banking industry to gain a deeper understanding of their customers and members’ behavior.  To gain insight into evolving trends and behaviors, it’s critical to adopt appropriate technology and resources to ensure a robust deposit monitoring process is in place.

Here are the top 3 lessons bankers learn when actively managing & monitoring deposit risk

1. Watching market trends isn’t enough
   While a crucial component of any monitoring framework, an overreliance on market changes and the corresponding impact on deposit behaviors puts financial institutions in a purely reactive position.
   
   To proactively manage the deposit base, bankers must also understand, discuss, and consider the impact of idiosyncratic drivers such as liquidity requirements/levels, loan demand, member characteristics, and the competitive landscape.

2. Changes happen daily and weekly
   The rapidity of changing deposit dynamics over the recent rate cycle cannot be overstated and is particularly jarring considering the last decade of relatively stable patterns. In an unknown environment, understanding the near-term impact of a market rate changes, economic outlook, etc. is particularly relevant for effective risk management. With no way to predict the future, monitoring deposit changes in as close to real-time as possible is necessary to ensure stakeholders have the most relevant data when making key management and strategic decisions.
   
   
3. Integrated systems are worth it
   The unknowns of a new economic environment highlight the need for a more wholistic and iterative approach to alternative scenario modeling and stress testing. An integrated risk & performance management processes enables bankers to efficiently incorporate adjustments to NMD assumption adjustments in a uniform manner and understand the impact to the institution’s financial health and corresponding risk appetite.

By incorporating these lessons, bankers can more efficiently manage risk and understand customer behavior in an increasingly unpredictable economic environment.

P.J. Cole, Trusted Advisor & Sr. Sales Executive, Empyrean Solutions

If you’d like to learn more about how to implement best practices for deposits monitoring & analysis, watch our latest webinar “Deposit Dynamics: How Financial Institutions Can Successfully Leverage Deposit Data”, now available for streaming on our website.