Tips and Tools to Help Strategic Discussions as Stimulus Money Rolls In
January 6, 2021
3 minute read – As 2021 begins, federal stimulus money is already arriving in your customers’ accounts. Does this feel familiar? Everyone remembers how this can impact the numbers and financials, and it will create both opportunities and challenges. If your forecasts did not include additional cash stimulus, your institution may wind up hitting full-year 2021 deposit growth expectations by the end of the 1st quarter, or even the end of January. This could continue to build on the pressures that challenged the financial services industry in 2020. Considering this, and to make it easier for you to brush up on some things to think about, we thought we would pull together in one place some of the applicable messages from 2020.
Looking forward, expect the pressures to continue to evolve along the way. This is one of the reasons we have been suggesting testing additional paths for what may occur. Preparing for a range of different outcomes can better enable your team to move quickly if one of those particular outcomes begins to play out. This was covered in more detail in the following blogs:
Specifically, many institutions are concerned about what fast deposit growth could mean for net worth/capital ratios. Ratios decreased significantly for many institutions as liquidity poured in the door last year, and this could happen again, particularly if there is continued earnings pressure. In our experience, a quick tool to test different levels of growth combined with various levels of earnings can help communicate to your team the potential impact to capital. We have an easy-to-use-tool for these purposes.
As you see different potential levels of capital, it will become more important to have discussions around capital strategy and to get your team together to decide your institution’s unique comfort level. This tool can be a helpful complement to these kinds of conversations: Net Worth Strategy – Target Impact and Needs Spreadsheet. Make sure you don’t limit the conversations to just the challenges of fast deposit growth, though. When thinking about capital adequacy, it’s important to consider other pressures, as well as opportunities, such as your ability to protect against additional credit risk, regulatory pressures, or the cushion needed to allow for strategic mergers and acquisitions.
While deposit growth can certainly impact capital quickly, earnings can be an offset to those pressures. The following blogs address some ways to generate additional earnings in this uncertain environment, while managing risk:
$600 stimulus payments – it may not end here. There is increasing talk that another round of stimulus could be distributed sometime in the next couple of months. Whether it’s stimulus payments, the impact of different economic environments, behavioral changes, or a combination of events, there is an increased need to simulate “what-ifs” and have strategic discussions and alignment throughout the year.