Case Study: Deposit pricing
Situation: A $150 billion bank had previously been successful in growing MMDA and CD deposits, but lagged in the market substantially for two years, using a ‘rate pointer’ strategy occasionally to compete on price. It needed to substantially increase deposit growth, but was worried about the cannibalization of its large book of low-rate MMDA. The bank had taken a high-rate Interest Checking and Savings Strategy.

Key Findings: Grandfathered MMDA product balances were highly inelastic. MMDA market rates and elasticities varied dramatically by region and tier. Checking and Savings products were very inelastic, and the bank was in the AOI. Price elasticities for CDs varied by term and market, with the short-term (6-12 months) CDs the most elastic and CD roll fairly inelastic.

Actions Taken: The bank took price from the ‘sleepy’ existing MMDA (now grandfathered), Checking and Savings customers. The bank introduced a new MMDA product, aggressively priced based on local market elasticities and competitor prices, and managed cannibalization using Novantas recommendations. The bank surgically targeted higher promotional CD rates and took price on standard rate products. The bank redesigned its pricing process.

Results: MMDA balances grew ahead of plan (with lower cannibalization than was feared, consistent with Novantas-provide benchmarks); Grandfathered products and Checking and Savings products proved to be completely inelastic as predicted; The bank beat plan for 2007 in balances and margins, generating $80 million in additional spread.