The last time we had a rise in rates of this magnitude ended in 2006.  If we keep pace with the current rate hikes this cycle it will be the fastest tightening cycle in the past half century.  Stimulus programs have generated an estimated $5 trillion in excess deposits.  Inflation and Fed hikes have resulted in shrinking deposits by $370 billion in the second quarter according to a recent Wall Street Journal article.  Additional rate hikes will further entice organizations to reduce the size of their deposit base to match weaker demand.  Simultaneously, consumers will start dusting off their portfolios to seek better rates.  The classic rumble between Treasury and Retail over deposit pricing is inevitable. 

Populations have been shifting since the start of the pandemic.  People have flexibility to live in their preferred locations, no longer bound to the office structure of their companies.  This means where people bank and the location of their deposits is different than what it was before.  Shifting populations means shifting deposits.  Financial Institutions have a unique problem; they need to know where their current customers are living and where the best place is to find new ones.  Overlay the current rate environment and things just got a bit cloudier.  Typically, Financial Institutions react by doing a blanket competitive shopping strategy, which isn’t much of a strategy since it is just pricing to matching your perceived competition. 

What if there was a better way? 

Wrapping our arms around competitive intensity is the key to achieve all these goals.  It provides the tools to understand where to grow new households, reduce the balance sheet, manage net interest margin and retain customers/members.  Instead of following the market, banks and credit unions know which markets to match competition, lag with measured pricing and hold in order to harvest and/or run off balances.

Inver Consulting Group crafts strategy based on analytics.  So that is just what we have done.  We examined population trends and deposit data to see exactly where people are going and taking their money with them.  We developed a competitive intensity index utilizing a number of factors.  The biggest are the number of banks and credit unions, their branch count and deposit base.  Understanding competitive intensity provides the knowledge of where to price aggressively versus small incremental increases to maximize spread income and portfolio balances.    

What Metropolitan Statistical Area’s (MSA’s) are the most competitive since the pandemic?  Meaning where is it harder for banks and credit unions to make money and grow households?  When we slice the data into population tiers, pricing in a rising rate environment takes some of the clouds out of the sky. 

Competitive intensity follows population tiers, the higher the population the better the ability to compete.   The lower population tiers added over 200 branches, despite large population losses, while the two largest population tiers reduced branches by over 650 in the same time period.  MSA’s with populations between 2 – 5 million, performed the best across the board.  They grew population, increased deposits almost 10% and reduced branch counts over 1.3%.   This tier also had less than half of the MSA’s experience negative population growth, compared to over 66% in the other population tiers. 

The following MSA’s, broken into population tiers, illustrates the top five most competitive markets. 

Tier One Description: Over 5MM in Population

Top Five Competitive Markets:

  1. New York-Newark-Jersey City, NY-NJ-PA
  2. Los Angeles-Long Beach-Anaheim, CA
  3. Washington-Arlington-Alexandria, DC-VA-MD-WV
  4. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD
  5. Chicago-Naperville-Elgin, IL-IN-WI

Tier Two Description: 2 MM to 5 MM in Population

Top Five Competitive Markets:

  1. San Francisco-Oakland-Berkeley, CA
  2. Pittsburgh, PA
  3. Boston-Cambridge-Newton, MA-NH
  4. Detroit-Warren-Dearborn, MI
  5. Nashville-Davidson–Murfreesboro–Franklin, TN

Tier Three Description: 1 MM to 2 MM in Population

Top Five Competitive Markets:

  1. Raleigh-Cary, NC
  2. Hartford-East Hartford-Middletown, CT
  3. Virginia Beach-Norfolk-Newport News, VA-NC
  4. San Jose-Sunnyvale-Santa Clara, CA
  5. Providence-Warwick, RI-MA

Tier Four Description: 500K to 1M in Population

Top Five Competitive Markets:

  1. Winston-Salem, NC
  2. Fayetteville, NC
  3. Worcester, MA-CT
  4. Durham-Chapel Hill, NC
  5. Harrisburg-Carlisle, PA

Tier Five Description: 250K to 500K in Population

Top Five Competitive Markets:

  1. Charleston, WV
  2. Beaumont-Port Arthur, TX
  3. Amarillo, TX
  4. College Station-Bryan, TX
  5. Kalamazoo-Portage, MI

Tier Six Description: 150K to 250K in Population

Top Five Competitive Markets:

  1. Odessa, TX
  2. Vineland-Bridgeton, NJ
  3. Gainesville, GA
  4. Saginaw, MI
  5. Bangor, ME

Tier Seven Description: Less than 150K in Population

Top Five Competitive Markets:

  1. Cumberland, MD-WV
  2. Carson City, NV
  3. Lewiston, ID-WA
  4. Casper, WY
  5. Fond du Lac, WI

Understanding competitive intensity gives financial institutions the power to expand their pricing strategy from competitive rate shopping to competitive analysis using data to drive decisions.  Our process will inform you on which markets you can harvest, grow and protect.   Understanding the MSA’s is only one view, we provide insights down to the branch level.  

Follow this link for the complete list of all MSA’s and their rank within the population tiers.   You can also email to set up a time to discuss your organizations priorities.