FinPro’s Deposit Study service develops both the historical beta values and decay rates of the institution and then overlays a propensity to renew factor of each individual account.
BUILDS FRANCHISE VALUE
- The output builds value for our clients by establishing quantitative ways to measure customer loyalty. As these bank specific variables are improved they aid in building franchise value.
- Additionally, the output is used to make strategic decisions regarding minimizing a bank’s future interest expense, improving customer retention, and developing more robust funding plans.
- In addition, the process also satisfies all regulatory requirements for validating beta and decay modeling assumptions.
IMPROVE PLANNING PROCESS WITH BETTER ASSUMPTIONS
- Each bank must formulate a deposit rate plan that is tied to specific triggers in local market interest rates and liquidity ratios.
- This plan will determine how the bank intends to react to movements in interest rates, which will help drive assumptions utilized.
DO NOT OVERPAY DEPOSITS
- The sensitivity of decays to betas increases and decreases with the propensity to renew factor. Accounts with high propensity to renew are more loyal and not as rate sensitive.
- Banks need to know how loyal their account holders are so as not to overpay for deposits.
SATISFY REGULATORY BETA & DECAY ANALYSIS REQUIREMENTS
- The modeling process and assumptions are becoming a bigger and bigger focus of regulatory scrutiny, regulators now require a 3 to 5 year decay study to justify assumptions;
- A key part of the analysis is a deep dive into institutions’ beta values, decay rates and customer retention.