Bank Director Survey Reveals Top Strategic Challenges

Even the happiest place on earth has to adjust its process to find solutions to challenges. For years, Disney used the FastPass system to allow guests to reserve spots in line for as many attractions as they wanted weeks ahead of their visit. As time went on, however, Disney realized that it wasn’t providing the best park experience for all guests this way. In an effort to manage lines better, Disney discontinued FastPass and introduced the new Genie+ program, where reservations could only be made the morning of their visit, for one attraction at a time.Disney is one example of a successful company that pivoted and adapted to address challenges. Although the banking industry doesn’t have to worry about managing crowds, it does have its own set of strategic challenges that bank directors and executives face. According to Bank Director’s 2024 Risk Survey, topping the list of challenges that banks face this year are deposit pricing in a high-rate environment, attracting and retaining talent, evolving regulatory and compliance requirements, and liquidity management.In a recent webinar, Laura Alix, Director of Research for Bank Director, and Kiah Lau Haslett, Banking and Fintech Editor for Bank Director, talked about the results of the survey in more detail to uncover why these particular challenges are at the forefront.The Challenges of Deposit PricingHaslett said she was surprised to see deposit pricing at the top of the list of bankers’ challenges. “Twice [as many bankers] listed this as liquidity management, and three times more listed it as a challenge than generating revenue,” she said. “It seems like the Fed is done raising rates. Maybe some banks are continuing to see cost of funds increase even as [interest] rates stay high but stable.”Alix wasn’t as surprised that deposit pricing was listed as bankers’ top strategic challenge and saw it as a reflection of a hope that deposit pricing would come down. “The past year has been difficult for banks [in this area],” she said. Creating a deposit pricing strategy that enables you to preserve your net interest margin might sound stressful to most financial institutions, but there are some strategies to make it easier.Another survey finding was more notable for Alix: 78% of bankers reported that their net interest margin compressed compared to last year, which was 26%. Alix also noted that 40% said attracting and retaining talent was a top strategic challenge, down from 50% last year. “Maybe there’s some softening in the labor market that’s allaying some of these anxieties,” she stated.Regulatory Pressure’s Impact on Fee IncomeWith the Consumer Financial Protection Bureau (CFPB) and the White House intending to crack down on fees (especially overdraft and nonsufficient funds fees), bankers are scaling back their reliance on fee income. To get ahead of this change, 40% of survey respondents said they have adjusted their bank’s fee structure, while 10% have altered their fees due to direct regulatory pressure. “All this reflects some looming anxiety [in this area],” said Alix. Alix noted that the CFPB came out with a proposed rule concerning overdraft fees in January. “They will treat this like an extension of credit,” she said. “They want banks to disclose the effective interest rate of the fee, for example. Banks can either show the math or go by a predetermined benchmark set by the bureau.”In addition, the CFPB also finalized a rule in March capping credit card late fees for issuers with more than one million active accounts. “They are lowering late fees to $8 and eliminating an automatic adjustment for inflation,” said Alix. This may impact a financial institution’s ability to serve some customers.Rising Rates and Deposit RetentionMore than half (59%) of the bankers said they have experienced some deposit loss over the past year due to rising interest rates, with minimal effects on the funding base. Another 9% said they’ve experienced significant impacts on their funding base.“Banks have to be ready to fight for deposits,” said Haslett. “They can’t assume loyalty even from long-term customers. This is one of the mistakes we saw in the bank failures last year.”More Key Findings from the SurveyHere are a few more key findings from the Bank Director’s 2024 Risk Survey:

This year’s Risk Survey highlights that bankers are growing more proactive when it comes to adapting to growing technologies, such as with AI and cybersecurity considerations, and making the necessary adjustments to regulatory changes. Financial institutions would do well to consider how these challenges will have a direct impact on their own deposit pricing, fee structure, and deposit retention and devise solutions for how to meet them head-on.