The Origin of the “Deposit Study”

McGuire Performance Solutions, Inc. (MPS) officially dates back to 1995, but the date of the “vision” behind the company goes back as early as 1988. It was a business venture that came about organically, providing asset-liability management solutions for financial institutions. Like all good business ventures, it all started with a need, and Dr. William “Bill” McGuire and Dr. Rich Sheehan (co-founders) solved this need, a way to appropriately value a non-maturity deposit.  This methodology is utilized across the industry today.

The co-founders met while working together at James Madison University in Virginia. They were both professors in the Department of Economics in the School of Business. When Bill came up for tenure, there were people on the tenure committee who wanted Bill gone despite his outstanding record. It was not an environment conducive to a strong sense of ethics. Aside from the politics, it was successful in serving as the starting point for a long and fruitful business relationship between Dr. Richard Sheehan and Dr. Bill McGuire.

Richard Sheehan, PhD grew up outside of Boston, Massachusetts. He came from a white-collar family. His father was an accountant, so numbers analysis was not a foreign concept to him. He obtained a Bachelor of Science in math and economics from the College of the Holy Cross and a PhD in economics from Boston College. He went on to become a Professor of Finance at Notre Dame for over thirty years, up until his recent retirement in 2020. During his time as a professor, he was actively helping Dr. McGuire start and build the MPS company.

Dr. Sheehan was an early asset to MPS for his research and his access to data that no one else had. He thrived in the back office, making sure reports were done correctly and in a timely fashion. Most people at the company in the 1990s didn’t even know who he was. He simply didn’t fit anywhere in the company’s organizational chart. He was more or less on his own, isolated from the business end, doing his work remotely decades before the rest of us. When MPS was acquired in 2014, according to Dr. Sheehan, “MVRA had an all-hands-on-deck meeting in Denver after the purchase of MPS, and most of the people from MPS had never seen me in person.”   Christine Mills, current head of the MountainView team adds, “he was the man behind the curtain, heard but never seen.” 

Dr. Bill McGuire was from Cleveland, Ohio. His father was an automobile junkyard dealer. Bill was gifted at being about to take a car apart and put it back together. This was prior to the computerization of vehicles, back when everything was still mechanical. Legend has it that Bill met his wife when he sold her his used Volkswagen bug. Bill had an undergraduate degree in business administration, a master’s in economics from Ohio University, and a PhD in economics from The University of North Carolina. He taught economics and finance at several universities. He held several executive positions at various financial institutions that laid the foundation for his expertise and innovation in the financial sector. In the 1980s, Bill left a position at the University of Nebraska for the Federal Home Loan Bank of Cincinnati, serving as Vice President. He was heavily involved in regulation initiatives there. Eventually, a division was spun off from that, known as Performance Analysis Inc., which Bill became president of and eventually sold to Fiserv.  He worked as Senior Vice President at Sendero Corporation, a division of Fiserv.  It was after this position that he then went out on his own as a consultant and from this McGuire Performance Solutions was formed.

The Vision

Early on in his consulting, Bill worked with a bank, Commerce Bank, that was going head-to-head with regulators. The regulators were coming down on them because they were operating like a fast-food joint in the sense that they were providing great service and readily available bank branches. The bank was very popular and they were taking in all kinds of deposits, but those deposits were being used to purchase mortgage-backed securities. The regulators were hard on them because the average life of a mortgage-backed security was seven and a half years and the option that businesses and households would have in terms of checking or savings deposits would be that they could withdraw them basically overnight. Bill was looking at all of this critically and called up his former colleague, Dr. Sheehan, to discuss the discrepancies in risk management.

According to Dr. Sheehan, “It’s relatively simple if you’re going to estimate the life of a mortgage-backed security on one side of the transaction, then you should be estimating the life of the deposits on the other side. To do that you’re going to use a put or call option on one side, but not on the other side. It didn’t make any sense.”

So, they took it upon themselves to try to bring about change.

So around 1990, Bill asked Rich to help him and they started with Commerce Bank as their first big client. At this point, financial institutions did not have computerized data. Commerce Bank was hiring people off the street to keypunch in the data from random account samples. MPS used this data to estimate the expected life of a deposit. They determined that the average life is somewhere around 17.5 years. This number starkly contrasted the two or three-year lifespan that the regulators were willing to give an institution up to that point based upon the option value.

There were several iterations. “We were getting hammered by regulators because our methodology imposes an additional risk on them,” explained Dr. Sheehan. It was the appropriate way to do the work, but prior to Bill’s revolutionizing methodology, regulators assumed zero risk. MPS redefined the correct way to measure risk. They brought attention to the fact that assets and liabilities risk needed to be treated equally.

In the early years, every institution that they worked with was treated harshly by regulators. Bill was a salesman at heart, a very good salesman, but there was a time when it was difficult to sell to an institution that knew the regulators would be hard on them if they hired MPS and adopted this new visionary method. According to Dr. Sheehan, “We ran the gauntlet from 1992-96.” Ultimately, Bill’s methodology was accepted and it set a new standard. By the late 1990s, MPS became the lead expert in deposit valuations.

Sheehan puts it bluntly, “I don’t consider what we’ve done to be particularly newsworthy or interesting,” but it was most definitely groundbreaking.

“We ended up probably fighting with every regulator on the planet,” Dr. Sheehan remembered. Bill and Rich, two financial wizards, were challenging the regulators themselves and it was uncomfortable at times. They fought with nearly every regulatory agency, including the FDIC, SEC, OCC, and Federal Thrift. The Federal Reserve was the first institution that recognized that MPS was indeed correct. They finally agreed that consistency was needed in evaluating processes and regulations of core deposits and loan payments. The recognition from the Fed for their methodology was a turning point. It led MPS to obtain more and more business from banks that wanted to hire them, creating a steady stream of income. The next step was to patent the methodology. That led to the official creation in 1995 of McGuire Performance Solutions as it became known in the financial world. The patent was finalized and issued in 2008 and the deposit analysis became known as the Advanced Assessment Methodology (AAM).  According to Dr. Sheehan, “The company was Bill’s baby and in some sense, I was just along for the ride.”

Initially, Bill was the face and primary salesman, and Sheehan behind the scenes were MPS for many years. In 1997, the work that Bill had done at Federal Home Loan Bank pushed him in the direction of another service offering, model validations.

According to Sheehan, “We should be the number one provider of reports on the valuation of checkable deposits and deposits in general. We have a patent on that. Until we came along, no one did it.”

When Bill was ready to retire, he began looking for a buyer. He was determined to find someone to take over the company that would continue to nurture the business, he didn’t want to sell to a competitor to be dismantled as a threat, he wanted the business to live on. Bill found the right fit and MPS was acquired by MountainView Financial Solutions, in 2014 later merging with SitusAMC.

MPS revolutionized the way that risk management was evaluated while offering balance sheet management and compliance. Their patented Advanced Assessment Methodology for analyzing core deposits and loan payments put them in a league of their own. They built up their highly regarded reputation in the banking world by forging their own path. The bulk of what MVRA does is what was done under Bill’s leadership at MPS. His legacy is still at the core of the company. Many of the MountainView family have been a part of the company for decades and live to preserve the legacy.