Banks and credit unions need to start planning for the difficult economic situation that lies ahead. Due to the greater availability of cash, growing inflation and interest rates, the number of available positions, and pay inflation, this upcoming recession will be very different from the one that occurred in 2008. However, banks and credit unions cannot afford to repeat their errors. White Clay offers three strategies for financial institutions to overcome difficulties, maintain resiliency, and provide value to clients and shareholders.

• Build and execute a deposit pricing strategy.

In the past 14 years, deposit interest rates have been close to zero. Financial institution pricing strategies have focused on loans and fees, but the environment has changed since then. The pandemic stimulus increased commercial bank deposits by $4.8 trillion from March 2020 to June 2022, but $3.5 trillion (72%) of that growth was interest-free deposits. Due to a significant increase in the supply of liquidity, inflation has reached historic levels. To reduce inflation, the Federal Reserve raised its overnight interest rate target from 0.25% to 4.00%. This ratio is expected to reach 5.00% by 2023. A significant portion of the $3.5 trillion in interest-free deposits (currently considered core deposits) will go to banks. products have high-interest rates (non-core deposits) or fall due to the end of stimulus spending. The combination of these events forces financial institutions to create and implement an optimal deposit strategy for their institution.

The deposit strategy should include four elements:

1. Identify where clients have deposits in excess of their 3-6X monthly spending.
2. Create an institution deposit strategy in alignment with the Asset and Liability strategy optimized for their institution.
3. Implement a disciplined intentional deposit pricing process and tools optimized by client segment and relationship characteristics to price deposits according to the institutions’ pricing strategy. The process should include measurement, inspection, and coaching.
4. Educate and develop your teams to understand, execute and communicate the deposit pricing tactics effectively with your clients and internally.

Recall that you should continue to concentrate on efficient loan origination. Your clients will require credit in order to properly handle the coming economic challenges. Make sure the rates on the loans and credit lines you are generating will cover your costs for capital, liquidity, and risk in order to maximize shareholder value.

• Leverage modern technology.

Banks and credit unions need to start with a clean data environment. Technology can combine, normalize, and organize disparate data to create a single source of accurate information, which means employees at all levels of the organization can access it. a comprehensive view of the banking relationship with their customers. Advanced intelligence can determine profitability, customer behavior, and how to deepen each relationship to optimally price and deliver solutions to customers.

These advanced metrics also reveal how clients impact liquidity, capital consumption, risk impact and revenue generation. Armed with this information, banks and credit unions can create strategies to optimize customer relationships and deliver only the most relevant products and services. Knowing which customers are the most profitable, as well as how to develop other relationships, will be especially important during the coming downturn.

• Optimize capital.

Not only can intelligence be used to optimize customer relationships, but it can also track performance at the organizational level. Using technology, a bank or credit union can evaluate the team’s performance, as well as its products and services, to better align business and business goals. Employees better understand which products and services are most profitable to be able to deliver value to customers and shareholders. This organization-wide strategic alignment is necessary to execute any recession strategy.

Financial institutions should consider how they will prepare and execute their recession strategy now. Those who are proactive about these strategies will be in a better position to weather the effects of the recession and ensure the sustainability of their organizations.