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Keep 'Marge' happy — how to win the battle for deposits

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Keep 'Marge' happy — how to win the battle for deposits

Amid a fierce competition for deposits, banks might feel the greatest pressure when vying for large commercial customers.

Deposit costs have risen quickly as banks respond to higher short-term rates, growing funding needs and demands from customers. Many depositors are waking up to the relatively attractive rates available in the marketplace, and they expect their banks to follow suit.

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Kelly Brown, CEO and managing partner at American Deposit Management Co., said in the latest episode of the Street Talk podcast that when banks began offering deposit products such as money market accounts with rates over 2%, customers began questioning what their accounts were paying. Brown, a former community banker and founder of American Deposit Management, said advertising from banks such as Capital One Financial Corp. and neobanks like Chime and Aspiration is pushing customers to ask their banks why they not receiving higher rates.

"It's about as competitive as we've ever seen," Brown said. "Never seen anything like it, and I've been in banking 20 years."

Brown, whose firm helps connect depositors with favorable rates at about 650 banks across the U.S., said she has seen especially high pricing on certain commercial deposits but noted that competition varies from region to region. She said deposit pricing across the Midwest has not increased that much, with many funds still carrying rates around 0.75%. Comparatively, the cost of interest-bearing deposits across the U.S. banking industry in aggregate rose to 0.87% in the third quarter from 0.53% in the year-ago period.

Meanwhile, deposit pricing pressure is far more intense in other markets, Brown said. Banks are pushing harder for deposits in Texas and California, where many banks offer products pegged to 60% of the prime rate. The New York and Florida markets are by far the most competitive, according to Brown, with banks offering deposits rates of fed funds plus 130 to 150 basis points.

Such high rates could threaten net interest margins at many banks. Brown encouraged institutions to develop a deposit strategy that mimics the approach they employ in their commercial lending teams. She said banks should make deposit customers feel special and have a relationship manager dedicated to that goal.

Brown noted that every commercial customer has a controller, accountant or internal office administrator dedicated to the day-to-day banking activity at their company. Brown's firm often refers to that person as "Marge" and said banks need to pay attention to Marge — call her every month, send flowers on her birthday, remember the sports her children play and send cards if her daughter's softball team wins the state championship.

"Little things like that, while they sound basic, have been forgotten on the deposit side of banking," Brown said on the episode. "If we focus on making people feel special and important, those customers will not only be customers today, but their families and their children will continue to be customers of the bank."