In this episode of The Purposeful Banker, Alex Habet welcomes well-known banking expert Neil Stanley, founder and CEO of The CorePoint, to discuss just how different the current market is from past high-rate environments.
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[June 7 Webinar] Chasing Deposits in a Liquidity Crisis
[Blog] A Tale of Two Banks, Part 1
[Blog] A Tale of Two Banks, Part 2
[Blog] A Tale of Two Banks, Part 3
Transcript
Alex Habet
Hi, and welcome to The Purposeful Banker, the leading commercial banking podcast brought to you by Q2 PrecisionLender, where we discuss the big topics on the minds of today's best bankers. This is Alex Habet.
So the relentless focus on attracting and retaining deposits hasn't gone anywhere, at least in the past two weeks since we last talked about it. It's as robust as ever. And one of the places that, to me, that notion comes to life is on LinkedIn, although I'm pretty sure that the algorithm is playing an active role in that. I really realized this one day when I was doom scrolling and I stopped doom scrolling one day on there, and I noticed, man, just taking account of all the different posts that covered this specific topic. It's really breathless when you compare it to the past. But I noticed there was one particular individual who was the creme de la creme of prolific deposit posting.
He and I didn't know each other personally, but there were many shared connections with the PrecisionLender world. So we huddled internally. I said, "Well, wouldn't it be great to have Neil Stanley, this prolific poster, on the show to help give our audience a little bit of his fantastic perspective?" So we are thrilled that he's accepted the invitation. Neil has a pretty interesting background: over 25 years of experience as a bank executive, holding a range of roles, including chief liquidity and investment officer, chief credit officer, president of community banking, and CEO. He is the founder of The CorePoint, whose mission is to revitalize pricing strategies in the retail deposit space. And we'll learn all about that, but for now, Neil, I'd like to welcome you to The Purposeful Banker.
Neil Stanley
Well, thank you, Alex. That's a very high bar you've set for me. I don't know that I'll live up to that, but we'll do our best.
Alex Habet
No, I'm sure you will. So talk to me ... in our first introductory call that we had, one of the first things you said to me is just, you pointed out also just how in vogue what you have to say is suddenly, especially when you compare it to the past. So talk to me: What's it like advising people on deposits a few years ago versus now? Tell me about some of those differences.
Neil Stanley
Well, it's night and day, obviously. I started this company in 2010, and I thought it's going to be a few years because the great financial crisis is not going to end abruptly, so it's going to take a little while for our company to catch hold. I didn't know, Alex, it was going to be 13 years to catch hold. So we basically had 13 years to really get grounded in how we work with financial institutions to help them deal with this environment. And it is definitely a different environment. And people sometimes will say, "Well, Neil, you've been in banking when interest rates were super high, so you've experienced this environment." Alex, that is not true. Interest rates were different, but the environment was also very different back then than it is today. So we've never, none of us ... anyone who tells you they know how this is going to play out because they've seen it before is blowing smoke at you because this combination of things has never occurred in history. So it's a brand new brave world for all of us.
Alex Habet
Well, so that's why exactly we invited you here. We need some help understanding this brave new world, and so every perspective is important to hear. So I'd like to start with something a little bit more fundamental. We like to sometimes reset to the basics here, just given that we have a wide variety of listenership. So different deposit types have always mattered, especially when you get into the nuances of the numerator and denominators that the banks calculate every day and how they account for all that stuff. But many who don't live in this space might think of just deposits as one big piggy bank within the bank, I don't know. So I think it's a worthy exercise to reaffirm for everyone listening here how: We should think about deposits at a macro level. So you shared a list with us of some recent topics that you've talked about at various venues. One caught my eye to start, and I think it would be appropriate here, is to look at the definition of volatile versus core deposits. So let's start there. How would you introduce that notion to our audience?
Neil Stanley
Well, there's the classical understanding of what a core deposit is, and then there's what's evolved into the sort of nominal or superficial perception. The perception became all checking accounts are core deposits. Well, that was not the conventional wisdom, but we, after the great financial crisis, started to look at the fact that we didn't really want to pay anything. So we would label things we really liked as core deposits. Checking accounts are core deposits. Well, actually the accounts that are structured in such a way that they are transaction accounts needed to operate businesses, those truly are core deposits, but surplus funds that are put in a checking account because we're not sure what else to do with it, those are not core deposits. And so we kind of tie core deposits into the idea of insured deposits, and there is certainly something about insurance that we see today that we didn't see just a couple quarters ago.
So volatile deposits are by definition deposits that we can't plan on over a longer horizon. The core deposits, the non-volatile deposits are deposits that are in process of being utilized in businesses and for consumers' lives. And there's a definition of those that you can find in the FFIEC guidance as to what constitutes that. And what's so funny is we've observed that people would say CDs, not core deposits; checking accounts, all core deposits. Well, that superficial assessment is inaccurate because some CDs are very much core deposits. Some are not. Some checking accounts, very much core deposits. Some are not. So we have to get more granular than what we've been in with the superficial assessments of this, hey, those are hot deposits, and those are core deposits. There needs to be a better understanding of what relationship is behind those that actually creates that stickiness to those funds.
Alex Habet
Is the data available to do that, or we haven't developed yet those classifications?
Neil Stanley
Well, good question. In the trivial interest rate environment, the motivation to manage money went away because if it really is, we're talking about pennies, it's just decimal dust, I don't really care if I get paid or not paid, then people manage differently than when interest rates are non-trivial. When interest rates are motivational, people, it may take them a little time, but people will say, "Hey, I should get paid. I should be putting my money to work." Alex, we have a whole generation of people who believe that the term "putting money to work" means putting money at risk, and that's not true in an interest rate environment like we have today, of five and a quarter Fed funds. You can put your money to work without putting any of it at risk. That changes the way bankers need to think about core and volatile deposits.
Alex Habet
Right. Right. So obviously a lot of the focus has been driven by sudden movements in addition to the rates. So I want to pivot a little bit on that because I'm sure you track fairly frequently where the money is moving. You've kind of talked about money market, you talked about U.S. treasuries or non-banks and niche banks. We have a debate whether it's "neesh" or "nich," by the way, on the show. How closely should we be paying attention to some of these non-bank avenues versus the bank avenues, or I guess, how would you frame it under the context of movement? How would you explain it to someone in an elevator about where all the money's going?
Neil Stanley
That's a good question. So we do struggle with these macro concepts because we think, well, if I pay you, then you have money that you are going to probably put in a bank. If you pay me, I have money, I'm probably going to put in a bank. But what happens in our environment is that our U.S. government has such a big debt, there's so much U.S. treasuries out there, and we have now learned, by way of the I Bond, many of us who would never have thought of buying a treasury directly, just going to the U.S. Treasury and saying, "Hey, I'm going to buy a treasury," bought I Bonds because the yields were 9.6%, why wouldn't we buy an I Bond? Then we found out treasurydirect.gov, we can just do this ourselves, we don't need an intermediary, we don't need a broker, we don't need a bank. We can just do that.
And so there are people today who are buying treasury notes. The moment they buy a treasury note, it goes out of the banking system. Instead of the bank taking your money and buying treasuries, we're bypassing the middleman. And the banks that are not competitive with these funds that are being actively managed by depositors, they're leaving banks and going into treasury investments. Some of them are doing it through treasury direct, like I said. Some of them are going through brokers. Some of them are going through mutual funds, money market mutual funds, those are leaving. Sometimes we buy stocks. The stock market hasn't been surging, but it also has taken some people's money that would've been sitting in a bank, and that money's now in the stock market. So those funds are moving around into non-bank investments. And, of course, there's some stories of haves and have nots, as well. There are lots of situations where some banks have found deposits draining away and other banks picking them up. So you have industry activity where money's flowing out of the banks, but you also have it flowing between the banks for a variety of reasons.
Alex Habet
So we talked about, a few moments ago, around how you should think about these different deposit types, and we talked about now how some of this movement is occurring. Let's peel the onion back a little bit, to the back of the bank and how we should be reframing the notion of modeling these kinds of deposits out. Dallas Wells was on the show a few episodes back. It was right after what happened with Silicon Valley Bank, so we were kind of part postmortem on that. But one thing he pointed out in relation to the Twitter-led bank run was that that is literally shining a spotlight that all those duration studies and the models no longer apply, and obviously that took everyone by surprise. I think it's agreed, everything has to be rewritten around this, would you say?
Neil Stanley
Well, sometimes I like to use parallels from outside of the banking industry, and one of the ones that is really fitting, I believe, is to think about the difference between phone services. And if you did a study of the number of people who canceled their landline phone service in 1994 and said, "Wow, unless people move, they don't just cancel their phone. I mean, these are sticky accounts you ... they're going to be around." Do that same study in 2020 and just study how many landlines continue on an ongoing basis. The world changed. When the world changes, then those studies that were based upon a certain structure or a certain paradigm have to be discarded because the idea that somehow or another, people, they keep their DDA accounts and their funding in that DDA account for eight, nine years, and they decay at very slow rates. Well, if you did that study when interest rates were trivial, you probably could come up with those kinds of conclusions. But folks, we are looking at the likelihood of a sustainable, non-trivial interest rate environment, which is going to be motivational for people to manage their money.
Now, in many cases, the banks proclaim their desire to be involved in financial wellness, but simultaneously, we're not all that big on helping people move their money to higher interest rate-bearing accounts. And I get it. I'm not trying to be accusatory here, but the reality is the best thing that a consumer could do right now is take hold of their money, manage it properly, and get into something that's earning them money. And so we've got to be prepared for that to occur. And so when we think about these studies about a decay analysis and beta, we have to be aware that we're in transition.
We are not in a destiny of, hey, the beta is always going to be low because people are not paying attention. Well, they weren't paying attention, but will they pay attention when this environment persists, and they're sitting there going, "Hey, with my money, I'm losing hundreds, thousands of dollars every year by leaving it in a non-interest-bearing account or in a super low interest rate account." So I think that's going to change all of the background assessments, or the assumptions is probably a better word, the assumptions that are built into a lot of these studies that have been done just are no longer relevant.
Alex Habet
How long of a transitory period do you think this could be?
Neil Stanley
Oh, that's a great question, Alex. Society evolves. We see things today, I could go into the social realm of what's going on that just a generation ago, we would say that was impossible. People wouldn't think that way. We wouldn't be doing those things. And now we do. So people do change, our society does change. But what we've lived in, from a financial standpoint, has been low rates for so long that we really have lost a lot of sense of what it means to be responsible with our money. And as that comes to be much more aware with even a generational change, I don't know what the transition is.
I'm a student of this. The interesting thing, I talk about this sometimes, I'm almost 40 years into this career, and I have been diligent about understanding, developing, and refining deposit pricing strategies. The reason I felt like it was a calling was that when I entered the industry, regulation had prohibited bankers from managing interest rates, so they couldn't change the rates. So I felt like it was a real opportunity with people who were my generation, to understand the dynamics of this and try to come up with some optimizing approaches for financial institutions. And I can tell you, after almost 40 years, I still feel like I've got as much to learn as I did back then.
Alex Habet
I guess that's what makes it exciting, yeah.
Neil Stanley
Yes, exactly. I think this is the most exciting time of my career. So some people at my age are asking about retirement, and I'm going, "Oh, no. The last thing I want to do is retire." Because it's super interesting how we, as an industry, are engaging people, businesses, governments, consumers, how we are engaging them to provide value in an environment that has all of the open banking, all of the technology we have today, is so different than the last time interest rates were, I would call non-trivial, when interest rates were 5 or more percent. It's exciting to me, Alex.
Alex Habet
Yeah, it's like your whole career led to this moment, and you're ready for that. It's like your Super Bowl, if you will.
Neil Stanley
I've had a red shirt year for 13 years. It's time to get in the game.
Alex Habet
So we tend to do a lot of analysis with the data that's on our platform. And as you can imagine how banks are faring around deposit pricing is of keen interest now. We recently published a couple of blog posts, they're live now, so if you're listening, you can go to precisionlender.com to find those. The title of them is A Tale of Two Banks. It's a two-part blog series that when we took the entire portfolio dataset on our platform, there's always going to be a distribution of performance across any metric. So we looked at deposit growth in this particular scenario, and we picked out a couple of signature factors around both sides of that spectrum in a 12-month period that ended recently. What were some of the behavioral patterns that we observed in the banks that have actually grown in deposits, and the same is true also on the inverse.
Now, I will say on the population as a whole, which validates that this is a good sample set, we noticed that about 40% of our clients have grown in deposits in that 12-month period, and 40% have declined, and then that remaining 20 is neutral, which is actually in line with a lot of what we're seeing in the broader economy. But what's interesting, too, is if you were to look, bisect that information with community regional enterprise banks, we saw that nearly 60% of the enterprise in the community banks grew, and then the inverse was true with the regional. So the regionals, 60% of them saw an outflow.
Now, when we zeroed in into those two extremes, for lack of a better term, there was a couple of interesting patterns that came out. In both ends, the case was usually that the top 5% of the bankers in each of the example institutions held an outsized portion of the actual deposits. These are relationships that they managed. But if we look at the banks that fared well, that have actually grown in deposits, the interesting fact is if we looked at that top 5% of their bankers, the average price that they paid on those deposits was lower than the rest of their peers. So the best, were not paying as high as everyone who is not the best, which immediately tells you that something else is at play. I mean, what is paid obviously plays a role, but it's not everything.
We also noticed that these particular individuals had an outsized portion of, or a high concentration in non-interest-bearing accounts, I think it was like 73% or something of the deposit mix, was non-interest-bearing, which obviously has its advantages. But what were some of the things that were happening at the institution that clearly helped was there was transparency in how they manage exception pricing and approvals. That's more on the operational side, but how these bankers were executing strategically was important. They had a larger share of wallet across different products. So if you look at a simple metric like how many products per relationship this institution had, they had a higher portion than the banks that didn't fare well over the 12-month period, which again, lends itself to they weren't the home of the core relationship, right?
Neil Stanley
Yeah.
Alex Habet
On the other side, the banks that didn't fare as well, they were paying higher, they were quoting higher rates on deposits, but they weren't necessarily achieving the objectives, and they had very low non-interest-bearing accounts. I mean, it was in the single digits. So there's weak pipeline management that can come into this, or lack of integrated systems. There's a whole host of things that could contribute to some of these observations that we have. But primacy seems to be the one that you cannot forget about. It can't just be about the deposits. But since we have the deposit expert here on the show, I kind of put a big backdrop, I do want to ask you, if you were advising a bank executive today, what's probably the most common piece of advice you would give them? What are some of maybe different product strategies to put in place or pricing strategies specifically. What would be your first instinct in terms of advice you'd offer?
Neil Stanley
Well, one can never discard the status, the momentum, the historical perspective, the relationships that are intact in a situation that you're in, or you maybe inherit. You have to look around you and say, "How did we get here? And then what are we going to do from here going forward?" And so we find, as you've just pointed out, that success has inertia and people who have been successful, you'll find that there are things that they've done decades ago, years ago that have created that, and they are now working with that momentum. So when we come in and we try to help somebody, it's always hard to segregate out the impact you're making with new, improved approaches to a legacy of activity. So I am not surprised when you find a bank that has a legacy of high volume of demand accounts, great breadth of relationships, that in an environment that maybe gets a little more challenging, that they go through that pretty well.
The question is, can they change the trajectory of what they're doing positively, or are they just on that trajectory because it's their legacy? So a lot of what we're talking about today is based on the fact that one key motivator has changed: interest rates. But it's not the only motivator. And that's the part that in the financial industry, we have a tendency to think, it's very cerebral, hey, everybody's motivated by interest rates, therefore, interest rates are the defining definition of success, and we have to either have high rates to attract everybody or low rates to keep our margins strong. That's way too simplistic. The reality is motivation value is a combination of a whole bunch of things, and your financial institution is helping people manage their money. They're helping people who need money they don't yet have. They're helping people who have money they don't yet need. They're helping people make payments just as they anticipate and want, and keep track of it all.
And the fact that we see interest rates changing in the bank, we think, oh, this is how we're going to attract more deposits. We're just going to pay higher interest rates. We're going to raise our interest rates. We're going to use the exact same products we've always used and just change the interest rates. Well, I don't know, does it matter to people? Some it does, some it doesn't. So the key is creating value. The reason you have a financial institution that's successful is that you help people. You created value, and you got paid a value because they were willing to say, "Hey, this is valuable. We'll pay the bank for the services they provide." So the key for creating a new trajectory, a new impact, is understanding how to put that combination together.
It's not just interest rates. We've got to get away from that simplistic thinking and think, how are we structuring our products? Do we have the structure in place that invites people to do business with us, and it doesn't overemphasize the pain that they may feel about the switch, the pain that they may feel about the structure of our ... What is causing them to say, "Oh, I'm out. I'm opting out." And we have to understand that. And one of the things, and for some people is interest rate, but it's not for everyone. Some people are opting in or opting out because of interest rates, but it's not everyone. And so, Alex, you present exactly what we find. We have some of our clients, we like to look at our data and say, "Hey, if everybody's using a really efficient system, they should all be super effective."
Well, some of them are. Other ones are transitioning from an old way of doing things. And when they transition, sometimes it's a little clunky when they are making changes because everybody's getting used to something better. Even though it's better, change isn't always welcome. So that's part of our industry's issues is we have a lot of legacy stuff. We are a regulated industry. We are an industry that's heavy in operations. And to make changes, even when they're really, really healthy and good, it's hard for us to do. It's hard for me as a banker to say, "Oh, I need to change something I've done for decades." But sometimes we need to take that step. And I think this environment, with all the open banking technology and all of the interest rate movement, it's creating an environment where we were going to need to take steps that we've never taken before.
I know with PrecisionLender, there are a lot of people that started using pricing systems for lending, and they were like, "We didn't have this before. We could just figure it out. We could ad hoc, decide what loan rate we're going to charge." Well, it kind of worked until it didn't, and it didn't because it got more competitive. We had more people trying to price the same deals, and we were getting arbitraged within our own organization. They're doing it this way, they're doing it that way. Maybe we need a system, maybe we need approach that is intuitive, but it's also using some really consistent logic. It's not just feeling good, it's actually based on something really important, the risk -djusted return on equity. Alright, well, let's use something that's consistent and we can apply it on a scalable basis. That's what's going to happen in deposits.
Alex Habet
Oh, so I'm sure you've also been following the developments and generative AI pretty closely. Who hasn't? How do you think it will impact the way banks and bankers serve their clients the most? Do you think, for example, now it's potentially much easier to educate a banker on various deposit pricing strategies to get it into a very specific example? Do you think that tools, what ChatGPT has shown is capable of, will now make, in some cases, complex strategies much more approachable to the everyday banker so that they can achieve that strategy at scale?
Neil Stanley
That's a great question. Let me just tell you about my experience with ChatGPT on a personal level, and then I'll expand from there. But the first day I worked with ChatGPT, I'm thinking, I just got to get on this and figure, I got to learn something here. So I'm doing it, I just wrote my wife a birthday card message. I'd done my typical thing, and I thought, I wonder what ChatGPT would say to an active woman of her age. And so I basically just put in there, "How would you write a birthday card note to an active person, a woman of this age?" When my wife read the card that ChatGPT wrote, I got this, "Aw." I didn't get that, Alex, from the card I wrote. It was just like, "Oh, thank you."
But ChatGPT, it just took "active, age of the woman," and then it extrapolated into "I hope we spend more time out walking, seeing the sunset, watching the sunset together. It's just such a wonderful experience. Thank you for all these years and happy birthday, many more." I mean, it just hit home. Well, if this system is basically taking the things that we have worked on as individuals working in our lives, day by day trying to accumulate the way to interact with each other, and it's taking a composite of all of that and saying, "Well, these seem to be the things that really work with people." And then I test it with the birthday card and go, "That seemed to work." How could it not work in other realms?
So I will tell you that many years ago when I worked with computers, I thought, oh, it's really good at doing a linear process decision tree: yes, no, yes, no. And you just worked through the decision tree. And in sales, that didn't work very well because you could just say to the system, "Oh, did they say yes? Take it. If they say no, do this." But it just kind of dumps everything out for the buyer. And so I pretty much discarded trying to automate the way that professionals engage. Now, I'm rethinking that. I'm not sure where the conclusion is, but I do know this: The best and brightest professionals will always have a job. There will always be work for us. However, those people who are marginally skilled, not very creative, and just like processing transactions, I'm sorry, the world is not going to be a pleasant place for people who just want to do the same thing over and over.
And you've heard this, I'm sure. I know people with 30 years' experience, and then I know people who have one year of experience that they've repeated 30 times. For that group of people, ChatGPT is going to be very uncomfortable. But those people who are progressing and continuing to create and add value and engage people, there'll always be a room, and we will need, it'll be necessary to keep progressing. So I know that was kind of a long-winded response, but I can tell you I'm not thumbs down on ChatGPT. I'm thinking there's a lot that's going to happen, again, it's why I'm kind of excited about our industry, but it is not going to be a pleasant thing for people who don't approach it with a spirit of seeking creativity and employing creativity, because if you're just doing the same thing over and over, you're going to be displaced.
Alex Habet
Yeah. Yeah. So are you all thinking about how to leverage some of these technologies at The CorePoint?
Neil Stanley
We are. We've met with some specific providers and entertained the idea of using some of those tools. At this point, we haven't taken a direction on it. We're still in that gathering mode to try to figure out how to best approach it. But yeah, it's definitely on our radar, Alex.
Alex Habet
Yeah, I think the same is true with virtually every other company out there right now. Tell me a little bit more about The CorePoint and how you work with clients, the kinds of services, products that you guys offer.
Neil Stanley
Well, The CorePoint was really designed to be a software as a service provider that introduces refined approaches, professional approaches. The reality has been, and it's why I really launched the business, is that from the deposit standpoint, most financial institutions have hired order takers and product pushers. They may have been selling sweaters and shoes last week. We hire them at the bank, we want them to use charm and hustle, want them to be cordial and friendly and engaging, and then we say, "Here's our products. Here's our legacy products. They were designed back in the '60s, but that's what we're going to do. We're going to offer CDs and savings accounts and checking accounts, and they look like everybody else's CDs, savings and checking accounts." And many bankers today cannot articulate why their products are better than anybody else's, they just want you to bank with them because of them.
Because, hey, you have a relationship with me, and I like that. I want to have a warm human being to talk to. However, I'm still going to make the best choice as to where I bank based upon the value I perceive, not where my friends are. So what's happening is The CorePoint is delivering new processes, new products. In other words, most bankers say CDs are CDs and savings are savings, but Alex, you can take features of CDs and put them in savings. You can take features of savings and put them in CDs, and now all of a sudden you have a different value proposition. Wow. You can pay higher rates on savings accounts because they have some CD features in them.
When I mention this, Alex, to most bankers, they will look at me like deer in the headlights like, I've never heard of such a thing, but we've been working on this for 40 years. And what we know is that these things work because we've tested them as a business for 13 years. We provide the process, the products, the platform. We have a platform, because if you're going to make a dynamic environment, you can't use a static rate sheet, you have to have a platform. PrecisionLender obviously is a great model for that. We've got numerous variables that we can adjust, and as we adjust, we can create alternatives. The more alternatives we have, the more professional our delivery can be. So with that platform, we do have to train, and some people have said, Alex, that we have a training company that just happens to have some software because everyone that works in a training capacity here has been a banker.
And some of us have been at high levels, but we've all worked through the levels. None of us had a silver spoon in our mouth, and we were the owner's child and just kind of skipped the mid-management and went right to the top. We've all worked in the lower levels and worked up, and we understand the plight and the environment of the retail banker. One of the key things we do, Alex, when we work with retail bankers, I, as a bank CEO, former bank CEO, can say I've never met a commercial lender who I had to give a pep talk to for their ego. Their egos are usually just fine. But when I talk to retail bankers, Alex, many times I'll hear this, "Oh, I'm just a personal banker." I'm like, "Whoa, whoa. Did you say just a personal banker?" The reality is, without you, this bank cannot function. We must have the raw material to run this bank. You are the key to the success of this bank because you negotiate with the key providers of the raw material.
All those deposits that you bring in, those relationships you build, without them we can't survive. We cannot thrive for sure, and we can't even survive. We must have you. Now, again, I don't have to do that pep talk with the commercial lenders. They don't say, "I'm just a commercial lender." We don't want any personal bankers thinking they're just a personal banker.
Alex Habet
Yeah, yeah. For sure. For sure. And I also see that you mentioned you do some training, and you also shared with me your YouTube channel recently. So you're putting up a lot of stuff on there. How can people find you on YouTube?
Neil Stanley
Yes. So you can go to our website, thecorepoint.com, and you will see there is a category called resources. And when you hover over that or click on that, it'll take you to a section called webinars and podcasts, and those videocasts, YouTube is in there, and you can click on our YouTube channel. I would encourage you to subscribe to the channel and turn activations on so that you get a notice when we have new ones. They're usually five to 10 minutes long. And I'll get on there, sometimes I have a guest, but most of the time I'll get on there and just talk about a specific thing that we think is going to move the needle. What are bankers working on today? Oh man, they're maybe missing the boat on this particular topic, let's do a concentrated conversation about that topic. And right now we have, I think, 40 episodes of, we call it, To The Point.
Alex Habet
Yeah. Well that's a great title for the supporting company there. Well, Neil, I wanted to thank you again on behalf of the audience for coming on today, sharing your wisdom. I know I certainly appreciate a variety of perspectives, both from within our walls here at Q2, but also from out there in the market. So again, appreciate you coming on. Anything else you'd like to plug before we wrap up today?
Neil Stanley
Well, one of the things that I keep hearing from bankers is that they think we might be transitioning back to lower interest rates, and the recent news has kind of helped them mature that a bit. But one of the things we like to do is to share key financial resources with our clients. So if you go out to that same website that I talked about, thecorepoint.com, and you hover over resources, you'll see a file that says key economic resources for bankers, and we just welcome you to tap into that. It's got a whole list of things that are available to you, a lot of them from the Federal Reserve. Some of them are very focused in on what we've talked about here today, like the money supply. Why is inflation going to be sustainable? If you think inflation's going to go back down to 2% anytime soon, you better look at the money supply and ask yourself, how can that money supply stay so elevated, and yet we're going to return to inflation levels that were really super low? Things like that.
I just welcome you to tap into that as our audience here. We love having people use this vital information. And I'll just end with this: the cost of funds in our industry is the number one changing variable. In other words, as a percentage of your income statement in a financial institution, nothing in 2023 is going to change as significantly as a percentage as cost of funds. In fact, in the first quarter of '23, the cost of funds was 161. That's the cost of funding earning assets. Just one quarter ago, that number was 1.17, and we're talking about just one quarter. We've got three quarters to go yet of data before we'll know how the year wraps up.
So Alex, we are sitting in an environment where the industry is evolving and there are going to be haves and have nots, there are going to be winners and losers, and we're in a good position to assess who is pretending like this is going to just go away on its own, and who is actively engaging with strategy. It's a fun ride.
Alex Habet
Excellent, excellent. Maybe on a subsequent episode, if you'll agree to come back, we'll dig into a lot of more of the statistics that you analyze, but I appreciate you plugging that because I thought that was also a valuable resource when I checked it out, too. We'll be sure to include that in the show notes as well. Neil, thanks again for joining and look forward to hopefully having you back here on The Purposeful Banker again soon.
Neil Stanley
Alex, it's been a pleasure to be with you.
Alex Habet
Alright, well, that's it for this week's episode of The Purposeful Banker. If you want to catch more episodes, please subscribe to the show wherever you like to listen to podcasts, including Apple, Spotify, Stitcher, and iHeartRadio. And if you have a minute to spare, let us know what you think in the comments. You can also head over to q2.com to learn more about the company behind the content. Until next time, this is Alex Habet, you've been listening to The Purposeful Banker.
