Riding the Spread

“We analyze and recommend swaps and other interest rate protection products to clients, and providing this analysis is a key element of our client service,” Falb says. “We might even require in some cases that clients fix some proportion of their debt.

Doing so, he says, protects them from interest rate swings that could harm their balance sheets—and their ability to pay back their loans. “Most companies shouldn’t be in the business of predicting interest rates—they should be running their businesses,” Falb says. “A swap is like insurance. You protect your worst-case scenario and then you can sleep at night.”

Build Relationships

A bank can’t let its rates stray too far from those of its peers, or it will lose customers. But like most businesses, banks hope that their connections to customers will be based on familiarity and trust.

It’s easier to build those customer relationships with a solid array of services. Customers may be willing to accept loan rates that aren’t the lowest and deposit rates that aren’t the highest if they’re also getting remote deposit, cash management, and excellent customer service. “All of those are services that customers are willing to pay for,” Wier says.

Some banks partner with an outside provider to offer additional products. Fidelity affiliates with MassMutual Financial Group to offer insurance and securities services, for instance, and other banks offer securities trading, insurance, estate planning, and tax preparation to high-end clients through a network of professional partners. (See “Banking on Wealth Management” on page 92.) Relationship building is also easier for banks that demonstrate loyalty to customers who are having hard times. A client is less likely to move an account from a bank that helped her when her business needed a credit line but didn’t yet have the sales to support it.

Will all these measures keep banks as profitable as they were when rates were low? “We’re going to try to maintain our profitability levels,” Anderson says. “There will be more focus on cost cutting and squeezing out efficiencies.” And some banks may simply have to accept giving back some of the gains they made in the last cycle of rate decreases. That’s life—at least until the next cycle.