“Who wakes up every morning thinking about deposits?” That very pointed question was asked by the chairman of one of our bank clients. It is a great question. By the time that question was asked a second or third time, one person had been appointed as the Deposit Czar, in charge of leading and coordinating deposit activities across the bank. However, that person’s full time job involves other critical activities, limiting time available to focus on deposits. Further, not unlike other banks, over the years silos have formed and within those silos business line leaders have assumed responsibility for deposits. A part-time Czar, operating in that type of environment faces many challenges, no matter his credentials and level of internal respect.

 

In another case, a banker who said he was in charge of deposits also mentioned that this was one of many other important responsibilities; again, deposits were just one of many areas of focus.

 

In a third instance, one of the top managers of a regional bank was in charge of the deposit effort. His commercial bankers knew that they would be held accountable for getting deposits and would be taken to task (and possibly humbled before their peers) if they failed to do so. That bank relied on the force of its leader’s personality rather than process; for a time that approach worked. A fourth bank we know splits responsibility between a deposit product manager and the head of branches, perhaps defining the deposit opportunity too narrowly.

 

Certainly, banks do not lack for bureaucracy or jobs aimed at most every function. Further, we are loath to suggest more costs for institutions that are fighting against lower revenue streams and increased losses. Nonetheless, banks should consider establishing the position of Chief Deposit Office (CDO) as a role akin, in rigor, independence, and responsibility to the Chief Risk Officer.
 
Deposits Suffer From a Lack of Consistent Focus Despite Their Importance
While the value of deposits fluctuates based upon the rate environment and the spread between their cost and investment/loan opportunities, no one can deny the critical role of developing a strong deposit base, particularly today.

 

The banking industry is managing through unprecedented volatility. Despite the more prominent role taken by the government in backing deposits, many customers remain skittish. Last week, I was surprised when a senior person at a very highly regarded regional bank said, “People don’t trust small anymore,” including his own substantial bank as “small.”

 

At most banks, generating deposits is a local, grass roots activity. Branches, small business bankers, commercial bankers, brokers, and investment officers all have the opportunity to generate deposits because of their customer contact. However, while they have the opportunity (and perhaps the mandate), many lack the knowledge, incentives, or attitude to try to capture deposits:

 

• Depending upon the bank area, knowledge of the deposit products and the related customer diagnostic tools can range from excellent to nonexistent.

 

• Incentives for deposit gathering vary widely. For example, oftentimes branch personnel are highly focused on deposits while commercial bankers are not. Brokers may want to put dollars at work (for themselves if not their clients) rather than generate bank deposits.

 

• Deposit generation operates within silos. As suggested in the opening paragraph, for better or worse, different business lines are comfortable with the way they are currently operating; frankly, some will be resistant to outside ideas concerning how to improve their deposit performance.

 

• Pricing is often too uniform. Pricing should be customized based upon geographies, segments, competitors, and other factors. Many banks fail to take advantage of market anomalies, applying a one-size-fits-all approach.

 

• Geographic differences in approach and focus are allowed by management. Yes, approaches to deposit-gathering should differ based upon characteristics such as current share, population density, the number of branches, etc. However, a consistent methodology should exist for uncovering and evaluating deposit opportunities and marketing to and harvesting those targets.

 

The Risk Management Parallel
Virtually all banks we know operate with a chief credit and/or lending officer. That person(s) sets policies and procedures for credit underwriting, defines roles and responsibilities, and should ensure that a consistent approach to risk and risk management exists across a bank’s footprint and business lines. Similarly, the Chief Deposit Officer should serve as the central focus for deposits, often coordinating with other bank areas. While hardly a complete list, the CDO job may include:

 

• Evaluating the product set to bolster and/or streamline, as appropriate

 

• Developing communications to the line concerning the product set

 

• Capturing and disseminating competitive activities and internal best practices

 

• Working with business lines to set deposit goals

 

• Creating deposit initiatives with business lines not typically associated with deposit gathering, for example, Commercial Finance and Asset Based Lending

 

• Linking with HR on incentives and training

 

• Pricing deposits with the close input of asset/liability experts

 

• Creating a process to ensure all business loan offers ensure deposit capture

 

• Establishing a review process for existing business loans to evaluate commercial and personal deposit opportunities

 

• Determining the key metrics and building a tracking system for deposit growth

 

Basically, the CDO should have responsibility and authority for the deposit “value chain”, including products, market positioning, sales approaches, incentives, and other key areas. While all customer facing employees need to have a deposit orientation, the CDO is the person who eats, sleeps, and dreams deposits.

 

Final Thoughts
Of course, to a large degree, bank culture determines the optimal approach for a particular bank. In some cases a shared deposit focus can work and, ideally, everyone would just “do the right thing” and operate with an emphasis on deposits. However, we think that many banks require a deposit head both to encourage bankers to “do the right thing” concerning deposits and to optimize their efforts.