“The times, they are a-changin’.” This famous refrain from Bob Dylan’s song (https://www.youtube.com/watch?v=e7qQ6_RV4VQ) is as accurate today as in the early 60s, especially when we look at deposit needs for financial institutions.

In 2008, FIs had to shrink deposits to keep their capital ratio in line with the regulators. Marketers became accustomed to focusing almost exclusively on loan balance growth and were not concerned with the liquidity of the credit union. Today the opposite is true. Lending is attaining record growth, and liquidity has suffered. It is not uncommon to see 90% or higher loan to share/deposit ratios when I work with credit unions and community banks. The CFO is constantly struggling with the question of borrowing from the Feds or growing deposits. The decision, very often, is made based upon the cost of funds number. Which way has the lowest cost of funds?

Let’s look at this challenge differently, though, not from the prism of the CFO but the prism of the credit union membership, credit union operations, and marketing tactics.

First, credit union membership:
Which serves the holistic needs of the member? The member needs a safe, competitive place to save money. All credit unions were started with the goal of using member deposits to loan to other members. This business philosophy is our heritage and business model. This aggregating member deposits as the loan funding source also helps to create that need to help our members become better savers.

Second, credit union operations:
Credit unions have a strategic leader for their lending products. This lending executive ensures the credit union does what it needs to do to hit its loan balance goals every year. They are also responsible for the product offering, the features and benefits, and the pricing of those products.

Who in your credit union has this kind of ownership and responsibility for the deposit portfolio? In most credit unions, I see the following scenario play out:
CFO or CEO goes to marketing and says, “We need more deposits.” Marketing responds to this ask by, wait for it, running a CD promotion. Marketing does this because they know the hottest money in the market is CDs. They also know that if you throw a great rate out there, the money will come in, and it’s worked repeatedly. But what the CFO wants are the low cost of funds deposits, ideally deposits that cost less than the Fed rate, not CDs where you are paying a premium for those deposits.

If there were a strategic leader for deposits, the need to meet liquidity demands would be operating at all times. They would understand how to price to grow all deposits, not just high cost of funds deposits, and they would make sure the product suite was relevant to consumers the competition. They would have a pricing strategy to meet the liquidity needs of the credit union.

Three, marketing tactics:
Marketing has repeatable tactics to drive loan and deposit balances. They need to learn how to identify the needs for loans and deposits in real-time, so they know when to deploy a deposit growth tactic versus a loan growth tactic. Equally important, they need to learn how to build promotions and campaigns that are not solely reliant on Certificates. They need to learn how to grow and sustain core deposits, the low cost of funds kind, like checking, savings, and money markets. They need to know how to position their existing core deposits to meet the deposit needs of their members.

I assert if a CFO could see a way to grow core deposits quickly, they would be less inclined to rely so heavily on borrowing from the Fed. The member wins, and the credit union’s net interest margin wins.