Pub. 2 2022 Issue 6

The end of the year is fast approaching; looking back, it has been a busy year for Community Banks in Missouri. Competition, the Federal Reserve and inflation, and regulatory and legislative issues heavily impacted our banks this year. It has been an interesting year, with many changes and new issues. Missouri’s Community Banks have navigated these issues nimbly while serving those on Main Street better than anyone else.

In science class, we were taught that pressure is the application of force against an object. As bankers, we think about pressure as it relates to interest rates versus our deposit rates. Today, bank presidents, CFOs, and other risk managers across the country are focusing on the impact of deposit rates to their cost of funds, net interest margin, and net income. In Asset/Liability Committee (ALCO) lingo, we refer to the deposit “beta” to describe the relationship between deposit rates and their sensitivity to the change in short-term interest rates. A higher deposit beta means higher rates, which lead to higher interest expenses and lower margins.