NOVEMBER 20248MY OPINIONIN MY OPINIONINFunding costs have surged by over 350% in the banking industry in 2023, catching numerous institutions off guard. As a result, the near-term horizon promises to be a challenging and expensive liquidity environment. This environment has placed a premium on a financial institution's ability to safeguard and expand its deposit franchise through cost-effective, reliable deposits. However, too many institutions continue to rely on antiquated analytics, gut instinct, and outdated methodologies to drive deposit pricing decisions--decisions which will substantially impact interest expenses and, consequently, net interest income.While many institutions were devising last year's budgets, DCG's predictive deposit analytics models accurately forecasted over 5% non-maturity deposit attrition and an increase of at least 80 basis points in funding costs by mid-2023 (industry wide). Regrettably, many institutions disregarded our plea to carefully consider this scenario and its implications for deposit pricing and effective balance sheet management. Clients who proactively monitored deposits at risk, anticipated deposit attrition and migration, and implemented disciplined loan pricing (resulting in widened spreads) ended up faring much better than their counterparts in managing margin compression. While we cannot reverse time, we can maximize the potential of today's challenging landscape by embracing systems and approaches to data and analytics that we can leverage during this cycle and establish as a sustainable long-term core competency.Charting the Course AheadBank executive teams, including CIOs and technology leaders, are navigating the delicate balancing act of overseeing day-to-day operations while, at the same time, propelling the business forward through innovation and initiatives that yield actionable insights. Unfortunately, many institutions have embarked on technology and analytical endeavors that have fallen short of promises or exceeded budgets, causing some understandable reluctance to take decisive action today. By Justin Bakst, Executive Director, Darling Consulting GroupUNLOCKING DEPOSIT INSIGHTS: A SMARTER APPROACH TO ANALYTICS INITIATIVESJustin leads Darling Consulting Group's data analytics software solutions portfolio, which consists of Deposits360°®, Loans360°®, and Liquidity360°®. He is passionate about providing risk management education and strategic consultation to financial institutions leveraging DCG's analytics solutions. He has been a thought leader in risk management, including interest risk, credit risk, and liquidity risk. Justin has experience driving value in large public organizations and lean startup firms, and has over two decades in banking, including extensive work in credit risk as Director of Capital Markets. Justin is a desired speaker and contributing author for RMA, American Banker, NYTimes, and CIO Magazine.He has over 15 years of experience at DCG and holds an undergraduate degree from Bentley College and an MBA from Babson College.Justin Bakst
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