Field Notes: Jeff Dick, MainStreet Bank

By Jeff Dick

Deposits are the lifeblood of banking. Deposits fund loans, helping businesses and communities to thrive. But banks in high-growth environments—like the Washington, D.C., metropolitan area, where MainStreet Bank is based—often have to look elsewhere to fund their balance sheets.

The reality is that organic deposit growth doesn’t move in lockstep with loan demand; deposits often lag. With all the choices available to customers today, both online and traditional, we are competing intensely for deposits. Our solution has been to tap other time-tested sources of funding, including listing services and other wholesale deposits. Harnessing technology to bring in quality deposits from beyond our geographic footprint has been a part of MainStreet Bank’s funding and growth strategy since we started the bank in 2004.

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Fortunately, one nontraditional source of deposits—reciprocal deposit networks—got a big lift from this year’s Economic Growth, Regulatory Relief and Consumer Protection Act. The law permits a well-capitalized bank with a CAMELS rating of 1 or 2 to hold reciprocal deposits without treating them as brokered funds, provided conditions are met. Reciprocal deposits may total up to the lesser of 20 percent of the bank’s total liabilities or $5 billion without triggering brokered deposit rules. This change simplifies our job of maintaining sufficient liquidity to meet our daily and ongoing needs.

We also see positive implications for interest-rate risk management. Carefully selecting our deposit sources lets us better control the timing of deposit maturities. For example, if we have a gap in interest-rate risk and really need 24-month deposits, we can bring them in more quickly than we could if we relied on organic deposit sources.

Bringing in deposits through listing services is not just a win for us. It also benefits the banks that originate the deposits. Banks in communities with weaker loan demand are able to accept deposits locally and deploy them nationally. Funds, representing customer relationships that might otherwise leech out of those banks altogether, are kept within the banking system and put to productive use.

We are clearly seeing that a digital banking revolution is upon us, and its benefits touch both deposit gathering and liquidity management. Banks can now more readily source deposits from communities that have an abundance of excess liquidity and put those dollars to work where loan demand is high.

With proper reporting and analytics, we thoroughly understand the nature of our deposits, recognize volatility through stress testing, and stay in sync with regulatory expectations. More than ever, deposit sourcing clearly has the winds of technology innovation at its back.

Jeff Dick is chairman and CEO of MainStreet Bank in Fairfax, Va.