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Friday, Aug

E-mail

September/October
2002
Volume LXXVIII Number
V
Published by BAI
Subscribe to Banking
Strategies...it's a must
read

CONTENTS

PRINTER-FRIENDLY
VERSION

Table of Contents || Publisher's Perspective ||

Attitude Adjustment || Cash Cows? || Cultural
Imperative || Imaging Comes of Age || Piercing the
Veil || Pricing with Precision || Staffing Maneuvers ||
Tightening Down || Closing Thoughts || About
Banking Strategies

Pricing with
Precision
By Rick Spitler, Sherief Meleis and Phil
Vaccaro

To maximize the revenue

potential of their deposit
operations, banks need to take
a more scientific approach to
pricing.
Crisis? What crisis?
Many bankers likely have that attitude
about their deposit situation. After all, the
stock market swoon that began in 2000
sent a flood of money sloshing back into
bank accounts, helping to lower
institutional funding costs.
Yet, statistics clearly show a decadeslong stagnation in savings and checking
account balance growth for commercial
banks as non-bank money market and
mutual funds siphoned those funds away.
And the debilitating trend surely will reassert itself when confidence in equity
markets is restored. Deposit growth rates
will continue to limp, and non-bank
competitors, such as Merrill Lynch & Co.
and E*Trade Group Inc., will keep
grabbing market share by offering
consumers better combinations of rate
and access.
Moreover, banks are not doing as well in
the current low interest-rate environment
as it might appear. While overall deposit
volumes may well be robust, profitability
is decaying as balances continue shifting
from checking and savings accounts to
lower-margin products, such as money
market accounts and certificates of
deposit.
Now, more than ever, it is critical to price
deposits intelligently. The traditional
method of "supply-side" pricing, whereby
rates are set according to what
competitors are paying and what the
bank estimates it can afford, will no

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