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BANK MARKETING BUDGETS STABLE FOR 2006

Although the banking industry spent more to market products and services in 2005, industry spending will likely remain stable for 2006, according to estimates by the American Bankers Association’s 2006 Bank Marketing Survey.

Industry marketing budgets have been on the rise since 2002 with expenditures peaking at an estimated $10.6 billion in 2005. It was further projected that marketing expenses for the banking industry will reach $10.45 billion by yearend 2006; a decrease of 1.49%.

The largest budget increases occurred at the smallest banks, reflecting the competitive retail banking environment where community banks rival national banks for customers. Survey results reveal that average marketing expenses at the smallest banks, with less than $100 million in assets, increased by 61.5%, from $52,000 per bank in 2003 to $84,300 in 2005.

Courting customers with an abundance of product offerings became a mainstay of the heated retail bank competition in 2005. More than 73% of industry marketing dollars were spent promoting retail services last year, compared to 66.5% in 2003. Overall more banks introduced new products or services, with 77% doing so in 2005, up from 70% in 2003.

In reference to service, the largest share (43%) of banks’ marketing expenditures was for promoting deposit services, followed by mortgage loans (22%). Home owners were the most targeted customer segment (58% of banks), followed by high-net-worth customers (56% of banks).

The following includes other notable findings from the 2006 survey:

– Advertising expenditures accounted for 53% of 2005 marketing expenditures. Other major expenditures include public relations (23%) and sales promotions (16%).

– Banks increased spending for newspaper advertising to 31% of total advertising dollars spent, compared to 26% in 2003. Spending for radio commercials decreased from 15% in 2003 to 12% in 2005. Television commercials’ share of advertising expenditures remained at 6%.

– Fifty-eight percent of public relations expenditures went toward community relations activities, up from 49% in 2003. Banks with $5 billion to $24.9 billion in assets spent 19% of their public relations dollars on shareholder relations; however, those with $25 billion or more in assets spent a comparable proportion on media relations.

– Banks with less than $5 billion in assets spent the largest share of their sales promotion budget on give-away items (32%). Banks with $5 billion or more in assets spent almost half (48%) on point-of-sale materials, such as displays, banners and brochures.

Conducted from February through June 2006, ABA’s industry survey of 168 banks represents a cross section of the banking industry. The survey assesses how banks across the country budget for marketing activities and how different promotional mix components contribute to overall marketing performance.

FDIC Board Approves One-Time Assessment Credit

The FDIC board of directors has approved a regulation to implement a one-time credit of $4.7 billion to banks and thrifts that was required under the Deposit Insurance Reform Act of 2005. The credit will be used to offset future assessments charged by the FDIC.

Under the regulation, any institution or successor that was in existence prior to December 31, 1996, and paid insurance assessments before that date, will be eligible for a credit. (A successor is an institution resulting from a merger, consolidation, or the acquisition of 90% of an institution’s assets and deposit liabilities.)

“There is seldom an option where everybody is happy, but in the end, the FDIC sought to craft a fair rule that was very responsive to the comment letters received on the proposed rule,” said FDIC Chairman Sheila C. Bair. “The system is legally grounded as well as operationally feasible and is consistent with the purpose of the one-time creditu00e2u20ac”that is, to recognize the contributions that certain institutions made to capitalize the funds.”

The rule allows for an administrative process for an institution to challenge the amount of the credit that the FDIC calculates. Institutions will have 30 days after the effective date of the final rule and receipt of the Statement of One-Time Credit to advise the FDIC if they disagree with their credit amount. More than 7,300 institutions will be eligible for a credit.

Also, during the meeting, the FDIC board approved a temporary system to provide dividends to insured institutions. The rule will sunset in two years, at which time the FDIC anticipates approving a permanent system.

Compliance and Customers are Banks’ Top Risk Priorities

Financial institutions consider compliance and customer risks to be the most important categories of risk, according to the results of a 2006 survey conducted by the Risk Management Association.

This survey, the third in a series of short RMA surveys about operational risk, asked respondents to rate the importance of risk categories and to ascertain how well these categories were described by different terms. The survey divided operational risks into eight categories, each of which was divided into between two and eight risks, for a total of 41 individual risks.

“RMA’s objective was to test with the industry some risk categories that we thought were intuitively easier to understand than the Basel risk types,” said Charles Taylor, RMA director of operational risk. “Over the past 24 months our discussions with several institutions had convinced us that most business units don’t think in terms of categories like ‘improper practices.’ Rather, they know and care about risks associated with compliance and customer risks they associate with the Bank Secrecy Act, anti-money-laundering regulations, and know-your-customer risks.”

Another key finding of this survey, in which 61 RMA member and nonmember institutions took part, is that the most important risk in all categories is the privacy of customer data violation. The least important risks in all risk categories are the teller/vault shortage and market order routing errors.

Terror Insurance on the Rise

Nearly six in 10 large and mid-sized U.S. businesses obtained insurance to cover property terrorism risks during 2005, a dramatic increase from the 2003 average of 27% and up from 50% in 2004. Meanwhile, the cost of property terrorism insurance in 2005 was 25% lower on average than the 2004 rate.

A new report from Marsh Inc., a leading risk and insurance services firm, finds the purchase of property terrorism insurance in 2005 varied considerably, depending on a company’s total insured values, location, and industry sector. The report is based on data compiled from 1,623 businesses and government entities that purchased or renewed property insurance policies in 2005. Notably, while smaller companies (those with total insured values less than $100 million) were far less likely in the past to purchase this coverage, nearly half of them did so in 2005.

Take-up ratesu00e2u20ac”the percentage of companies buying the coverageu00e2u20ac”varied considerably by region: about 67% of firms in the U.S. Northeast and 58% of Midwest firms purchased property terrorism insurance in 2005, compared with 53% in the West, and 50% in the South. Take-up rates increased most dramatically in the Westu00e2u20ac”to 53% from 34% in 2004u00e2u20ac”and in the Northeast, where the take-up rates rose to 67% in 2005 from 53% a year earlier.

“There’s an increasing awareness of terrorism among businesses across the country,” said Robert Blumber, a managing director in Marsh’s North America Property Practice. “Clearly, businesses and their leadership at the highest levels recognize that this exposure is likely to be with us for some time and that insurance can help them address some of the financial consequences of this risk.”

Within specific industry sectors, financial institutions, real-estate firms, and health care facilities had the highest overall take-up rates, each exceeding 75%. In addition, media companies, those in hospitality, transportation, food and beverage, technology and telecommunications, and educational institutions all had take-up rates above 60%.