Inflation, quantitative tightening, unrealized security losses, slowing prepayment speeds, and deposit alternatives have created a war for deposits, according to a Filene Research Institute brief.

“It’s death by a thousand cuts in terms of the ripple effect of Federal Reserve action on the balance sheets of financial institutions,” writes brief author Mike Higgins, managing partner at Higgins & Associates. “The goal is to slow down activity, reduce the money supply, and get the economy back into some form of equilibrium.”

How can credit unions grow deposits in this environment? Higgins advises credit unions to:

1. Communicate what’s happening. Tell the board what’s happening, why it’s happening, and how it’s happening to all financial institutions, and that the board should prepare for challenging times with respect to liquidity and earnings.
2. Avoid hitting the panic button. Model net income scenarios to understand their potential exposure or their ability to ride out stalled asset growth.
3. Review and modify your strategies, particularly those centering on loan and asset growth.
4. Check your store of dry powder. Evaluate where your “dry powder”—access to funding sources—stands and your capacity to tap into it.
5. Monitor deposit outflows. Identify at-risk deposits and understand the implications of repricing.
6. Do your homework. “Deposit pricing strategy is a topic that has lain dormant for several years,” according to Higgins. “Get the playbook out and revisit strategies and tactics. In traditional rate cycles, deposit costs lag early and move fast later in the cycle. We have jumped right into late-cycle movement. Expect costs to increase quickly.”
7. Be prepared to make difficult decisions. Declining net income may require difficult decisions on the expense side.
8. Double down on your core business model. Invest in projects that reduce the cost of operations or increase member affinity.

“Rapid change is occurring,” Higgins says. “The best way to confront it is by understanding what’s going on, identifying the potential impact on your credit union, and developing action plans and tactics to address the new environment you are competing in.”