One of the more popular opening moves in the game of chess is called the "French Defense," or the "French" for short. Made popular in an 1834 game where the French defeated the English, the defense is a must-know. When the white player attempts to establish a position in the center of the board, the black side counters with an aggressive stop and then a dismantling, with a chain of alternative players such as their knight or rook. For black, the objective is to let the other player know you mean business, while attempting to open up the center of the board.
When it comes to liability pricing, we often recommend the French for a defensive answer to a local high-priced deposit promotion. Instead of matching rate, the countering bank does some marketing Aikido and attacks with service.
Let us say the battle is over a money market account and the offending bank places a 3.45% rate in the marketplace. The countering bank then releases its thrust with the message - while rate is nice, it is inconsistent, and building a relationship is more important in the long run. We have seen this done effectively, particularly when the countering bank characterizes the rate promotion as "buying your business." The message from the countering bank must be an articulation and quantification of their service - such as enhanced cash management products, longer service hours, bundled solutions instead of a transactional account, etc. The important point here is that rate is stopped with service and not by countering with rate.
The defensive bank not only ends up slowing the advancing bank, but it has an excellent opportunity to differentiate itself on service. In addition, the counterattack serves to amplify the outcome, as the attacking bank ends up getting even more rate sensitive customers. This tactic works exceedingly well if you can also get the local press to cover "the battle of banks" that highlights the difference between rate and service. The countering bank CEO should try to work in the press quote - "We don't feel that paying a high rate to new customers, while ignoring businesses (or households) that have been with you the longest, is a basis for building long-term relationships." On top of everything else, the quote should help either speed cannibalization (increasing the cost of the offending bank) or drive more service oriented customers to your bank. Either way, it is a win.
To institute the French when it comes to the war over liabilities, banks must be ready and conversant in how to use marketing, sales and public relations for liability pricing. Having a press release and media advertisement ready to go is an excellent first step. Further, banks must be ready to articulate exactly what "superior customer service" means when it comes to deposit gathering, in order to polarize the high-rate bank.
Like chess, to win the deposit game, banks must view competition as a series of moves designed to reach an objective. In this market, building a stable and low cost set of liabilities is the fastest way to build franchise value and place your bank in a winning position.