TLDR:
- Regions Financial is shortening the tenors of certificates of deposits (CDs) to manage deposit costs before expected interest rate cuts by the Federal Reserve.
- The bank’s Chief Financial Officer, David Turner, spoke at the Bank of America Financial Services Conference about the challenges and strategies in managing deposit costs.
Regions Financial is preparing for Federal Reserve interest rate cuts by shortening the tenors of certificates of deposits (CDs) in an effort to manage deposit costs. David Turner, the bank’s Chief Financial Officer, discussed this strategy at the Bank of America Financial Services Conference. Turner highlighted the importance of managing deposit costs as the “real challenge” for Regions Financial in preparation for the expected rate cuts. By repricing the bank’s balance sheet, they aim to benefit deposit costs and ultimately net interest income (NII). Turner expects NII to bottom out in the second quarter, and the bank is focusing on managing costs, promotional rates, and limiting the tenor of CDs to five months to have more flexibility in adjusting rates.
According to the article, banks had increased deposit rates in the past to attract consumers from higher-yield alternatives like Treasury bills and money market funds. However, this move impacted banks’ profits, particularly on the rates they charged for loans. Rising deposit costs and intense competition in the market were putting pressure on net interest income, leading to a drop in revenue for banks. The bank is closely monitoring changes in promotional rates not only within their institution but also among competitors to stay competitive in the market.
