THE DEPOSITORY LANDSCAPE HAS CHANGED Have Your Plans Changed? RYAN SMITH, MANAGING DIRECTOR AT PIPER SANDLER IN THE FINANCIAL SERVICES GROUP BALANCE SHEETS, ASSET/LIABILITY MANAGEMENT, FUNDING, LIQUIDITY AND REGULATION HAVE CHANGED: IT MAY BE TIME TO REVIEW YOUR STRATEGY. BUT CHANGING STRATEGY DOES NOT MEAN CHANGING YOUR INSTITUTION—ADAPTING STRATEGIES TO THE CHANGING ENVIRONMENT CAN BETTER SERVE CUSTOMERS AND PRESERVE YOUR INSTITUTION’S ABILITY TO OPERATE ON YOUR OWN TERMS. AFTERALL, A TREE CAN CHANGE ITS LEAVES WITHOUT CHANGING ITS ROOTS. Two things happened in the last few years that haven’t occurred before in the lifetime of any financial institution manager reading this article: a global pandemic and the widespread use of mobile and online banking. Both events have changed the time-tested structures and rules for managing a depository and many institutions are faced with a call to evolve. BALANCE SHEETS HAVE CHANGED. In the last few years, balance sheets suddenly became liquid during the pandemic and then suddenly illiquid as rates skyrocketed. Security portfolios ballooned and institutions were stuck with large unrealized losses while wholesale funding worked to fill the gap. So, what should change in your company’s strategy? There are two items our team at Piper Sandler hears consistently from management teams: we don’t take losses on assets, and we don’t borrow wholesale money. Both comments should be under review in this updated world. FUNDING & LIQUIDITY HAS CHANGED. Core deposits were put to the test as technology allows for quick withdraws and transfers, and the ability to shop nationwide rates and open an account takes place in five minutes from your phone. What’s the solution? Own more of your options. The depositor at every institution owns the option to withdraw money any time, and, other than CDs, without penalty. Your institution can be defunded quickly unless you own more options on the funding side—this typically means term CDs, wholesale borrowings, brokered CDs, or other term funding. 14 feature
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