Posts

/by

c. myers live – An Insightful Conversation About Inflation

, , ,

Top of mind for many decision-makers is the topic of inflation.  While there is a lot of uncertainty around the topic, the key is in the discussion.  In this c. myers live, we dive into discussions your team can be having around inflation and its impact on the financial industry, and why it is important to plan for a range of outcomes.  

To read more about inflation and interest rate risk, check out this blog.

 

Rob Johnson

Rob, one of five c. myers owners, has a reputation for deep, original thinking on asset/liability management and every conceivable modeling methodology, as well as analysis of investments, liquidity, aggregate risk, concentration risk, and other related topics. While Rob is a familiar face to the managements and boards of many of the largest credit unions, he has helped credit unions of all sizes tackle some of their toughest challenges, such as rebuilding capital and navigating safely and soundly with the smallest of margins. He has become quite familiar to many leaders in the regulatory world, both as an educator and a thought leader.

Learn more about Rob

David Loftus

David LoftusSince Dave joined c. myers in 2005, he has become well-known and well-respected by scores of credit unions in every corner of the country. Dave has worked on many complex modeling and consulting projects that c. myers has undertaken – he is always looking for a challenge. He most enjoys facilitating sessions for management teams as they work to make tough financial decisions, while at the same time running “what-ifs,” real-time, to help inform decision-making.

Learn more about David

/by

Business Intelligence Strategy – Put the Horse Before the Cart

, , ,

5 minute read – There are almost as many strategic initiatives focused on business intelligence (BI) and data analytics as there are financial institutions.  The potential breadth and depth of BI is so large that creating clear objectives for BI initiatives is essential.  Yet, perhaps because it is so unwieldy, some organizations have bypassed getting clarity on the BI strategy and jumped into the “how” by focusing first on tools, data sources, and teams.

Putting strategy first in no way minimizes the critical nature of the tools, data sources, teams, etc. It is because it is such a heavy lift, and there are so many options, that the strategic reasons for taking on a BI initiative should be clear up front.  Without articulating what the organization hopes to accomplish and by when, the initiative runs the risk of being driven by inappropriate influences such as which tools are coolest, or which department has the most sway.  This top-down approach ensures that the organizational efforts align with strategy.

Start by asking what strategic outcomes are big and impactful enough to justify moving in this direction.  Think through what is driving the desire for better BI.  It must be grounded in the high-level strategy.

For example, consider two different organizations with two different strategies:

The very reason it’s so important to state the BI strategy is because most organizations want what both of the example organizations are great at, plus more.  And that may be possible, eventually, as BI often progresses in phases.  But prioritizing the key strategic outcomes at the outset provides guidance and a filter when necessary trade-offs must be made as the “how” gets underway.

One helpful exercise is to ask each leader or area to identify the 3 most impactful business opportunities to seize or problems to solve with better BI and have the leadership team discuss.  It’s also appropriate to have conversations around what will be useful beyond the 3, but focus on the most impactful at first.

Cultivating the BI culture and mindset.  First and foremost, don’t be handcuffed by the past.  Most have lived in a static data world where reports are pre-defined and it’s extremely difficult and unreliable at worst, or time-consuming at best, to get the desired BI.  Recognize that shifting away from the static data mindset amounts to asking leaders to think differently.  Begin by asking, What would you want to know in order to transform your part of the business?  Initially, don’t limit the thinking based on what you can get.  Just practice asking questions that push you to think about your business differently, like What do people who click on our prequalified credit card offers have in common? or What else can we see is happening before someone misses a loan payment?  To become an organization that takes optimal advantage of BI to run the business better and move the strategy forward, leaders first need to practice thinking outside of what they are used to getting.

Who will own and drive this important initiative?  It needs a dedicated owner, and that owner must recognize the pan-organizational nature of BI.  It often lands with IT because of the technology tools required, but business intelligence is everybody’s business.  Whether it’s IT, Marketing, or another area driving it, the entire leadership team must be engaged.  Relegating BI to a silo is not a recipe for success.

Don’t forget to circle back. Teams must consistently evaluate whether the BI strategy is yielding the desired “greatness” and success of the high-level strategy.  Regularly reassess and tweak as necessary.  If Organization #1 believes it has successfully fulfilled its BI strategy, they should ask themselves whether they are actually credit analysis, pricing, and collections ninjas, effectively helping people with dented credit get the money they need in a financially healthy way.  If the answer is no, it may be that the culture and mindset shift to fully utilize BI has not happened yet.  It will take leadership demonstrating time and time again how BI can and should be used before a successful shift can be made.

The success of any BI strategy requires a dizzying number of decisions and a complex array of technologies, data, people, and behaviors.  Start by defining the most impactful business opportunities and problems to address and articulate the strategic reasons that are driving your desire for better BI.  Clearly identifying the BI strategy sets the stage for success and guides the multitudes of decisions and activities to follow.

/by

The CFPB Starts Flexing Its Muscles

The CFPB is coming online and has begun proposing rules and examining financial institutions.  While questions still abound on the bureau’s stance and operations, credit unions should consider the potential impact of new regulations.  For example, most credit unions weathered overdraft protection regulations fairly well by getting members to opt-in.  However, the CFPB is currently examining the policies and practices of the nine largest banks to see if additional regulation is necessary (Office of Information and Regulatory Affairs and Consumer Financial Protection Bureau).  Depending on the findings, income from overdrafts could be under threat.

Mortgage statements are another example.  The CFPB has stated that it would like to increase transparency in the mortgage servicing industry.  To do this, it is proposing regulations for monthly mortgage statements that would include alerts for delinquent borrowings with information for housing counselors and options to avoid foreclosures.  For adjustable rate mortgages, institutions would have to send warnings of interest rate adjustments and list alternatives consumers can pursue to avoid the adjustment (CFPB Seeks to Enhance Consumer Protections by Targeting the Mortgage Servicing Sector, National Mortgage Professional Magazine, April 2012).  Such changes can increase expenses as a result of changing the statements as well as the possibility of additional paper and postage from warnings depending on how the regulation is worded.

While the CFPB has said it will consider credit unions’ unique needs, the cost of compliance could likely increase as a result of new regulations.

/by

More Certainty Over The Direction Of Interest Rates?

,

Following the January 25th meeting, the Fed released a forward-looking rate forecast.  This forecast shows the range of predictions made by Fed officials about the level of short-term interest rates in the fourth quarter of 2012, 2013 and 2014.  The forecast also estimates when the Fed expects to begin raising short-term rates, and describes what the Fed plans to do with their investment portfolio.

The rationale for this change in policy is to provide more clarity for businesses and consumers as to the direction and level of short-term rates.  The hope is that it will spur additional borrowing and economic growth (though it is possible this will not have any material impact on businesses or consumers, as most already expect rates to remain low for a while).

However, this shift in policy raises several questions that decision-makers should consider:

  • How might other financial institutions respond? Now that the Fed announced rates are likely to remain low into 2014, do financial institutions further adjust loan pricing—dropping rates even further?
  • Will financial institutions take additional risk in their loan and investment portfolios by extending maturities?
  • Will there be additional market demand for short- and medium-term investments, further driving down yields?
  • Does this push decisions to “hedge” balance sheet risk further down the road, at which time hedging could become too expensive?
  • Why is the “risk management” function in place? To inform decision-makers about how the institution could fare in the face of unlikely events.  Institutions that put too much reliance on Fed forecasts might spend less time preparing for the unexpected
  • Is the Fed always right? Consider Fed Chairmen Ben Bernanke’s quote from his July 2007 testimony to Congress when he said, “Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.”  Unfortunately, the economy worsened materially in 2008

The Fed is a group of people, each with their own opinions.  They also do not have total control over all of the factors that would impact the level of rates.  Therefore, the Fed forecasts could be wrong.  However, the forecasts might lead to overconfidence, causing institutions to make decisions they might not have made otherwise.

Sources:
Fed Expects Low Rates Through 2014, WSJ, 1/26/12
Semi-Annual Monetary Report to the Congress, Federal Reserve Board, 7/18/07

/by

Are New Members Different?

, , ,

These are challenging times for financial institutions but it’s tough for individuals too.  Setting aside employment woes, managing personal finances has become especially difficult with the stock market in flux and dismal returns on deposits.  As financial institutions shift strategies to adapt to the environment, customers are reacting by looking for a better deal.  A March survey by Bankrate.com found that 64% of respondents would consider switching to a different checking account provider if their financial institution raised checking account fees.  So now that checking account fees are becoming a reality, who is shopping your credit union these days and why?

Right below the survey results on the Bankrate.com page, there is a prominent link to an article called “Credit Unions are Free Checking Champions.”  It’s interesting that most credit unions aren’t actively trying to compete on price alone, but that’s where they’re left standing, in many cases.  This credit union perception pulls in rate shoppers who might look like contributing members.  After all they are opening a checking account, which has traditionally been considered the cornerstone of a deep member relationship.  But are these new members purchasing secondary products such as loans, which make the potential loss-leader checking account profitable for the credit union?

It is important to study how member behavior is changing by reevaluating the data and quantifying exactly how much checking accounts cost and how many other products newer members are purchasing because it may be different than members who have joined in the past.

It isn’t easy to adapt to the rapidly changing landscape, but keeping these three questions in mind should help:

  1. Do you understand your members’ changing needs and behaviors?
  2. Do your products and services satisfy those needs?
  3. Are you able to provide those products and services in a profitable and sustainable way?

Source:
www.bankrate.com/finance/consumer-index/march-2011-checking-fees.aspx