In 2021, the Wall Street Journal published an article titled Banks to Companies: No More Deposits, Please. Today, it seems incomprehensible that some shortsighted banks were asking their clients, even those with very large balances, to move their deposits to another bank. Oh, how the tide has turned. Today, banks are begging, borrowing, and, well, not stealing, but doing everything possible to convince you, Mr. or Mrs. Business Owner, to switch banks. Full disclosure: we are, too!
Why such a 180 on deposits? As a banker, I have to admit it. Just follow the money. First, let’s consider that thing called the federal funds rate at the time of that WSJ article. That rate, which is set by the Federal Open Market Committee (aka the FOMC), is updated roughly every six weeks.
Back then, banks earned about 0.15% on balances held at the Fed. So, if your business had, let’s say, $100,000 in a non-interest-bearing operating account, the bank could hold that money at the Fed and earn $150 a year while paying your business 0%. After FDIC insurance, operating costs, and a few other expenses, that $150 disappeared pretty quickly. Even larger accounts of $1 million or more were not profitable in some cases. Essentially, these banks were saying, “We don’t want the $$$. Please go to another bank. We can’t afford your deposit.”
Really stupid of these banks, in my opinion. Well, economic conditions change…and they certainly did.
Today, that once-tiny rate is around 4% and likely heading north, so the same $100,000 could earn a bank $4,000 a year instead of $150. Those deposits can be worth even more if the bank has an active loan pipeline, because loan rates have increased, too. Today, a 30-year mortgage is over 7%!
OK, now put your CEO hat on. What would you have done in that 2021 scenario? Hopefully, you would have seen it the way we at HCN Bank did and wouldn’t let short-term thinking take precedence over long-term sustainability. Perhaps the desire to boost short-term bank earnings and stock prices led to a “push the depositors out” mindset. Then again, maybe it was because CEO bonuses are often tied to earnings results! But what are you signaling to your clients, many of whom have been with you through thick and thin, sometimes for decades? It didn’t make sense to us then, and it certainly doesn’t now.
Bankers are no different from other leaders. There are good ones and bad ones, and considering there are more than 4,400 banks in the U.S., bad decisions will be made.
At HCN Bank, we try to keep it simple. We’ve been supporting businesses for 54 years, and we’re excited to bring our boutique community banking approach to the Coachella Valley. We know small and medium-sized businesses often fall under the radar of the very large banks, and we understand you need the personal attention and local resources that people like Leo Macias, a 24-year Coachella Valley resident and our newly appointed Market President, provide.
If you value community banking the way it used to be and want to know your banker, call Leo at (760) 610-9539 or send him an email at lmacias@hcnbank.com.
Come visit us at our new location in Palm Springs: 500 S Palm Canyon Drive.
Kevin Farrenkopf is the President and CEO of HCN Bank. He holds an undergraduate degree in Business Economics from the UC Santa Barbara, and an MBA from the UCLA Anderson School of Management. In addition to serving as a director for both HCN Bank and Hemet Bancorp, he is a director at the Western Science Center, Healthy Valley Foundation, and the California Community Bankers Network (CCBN).
