U.S. banks’ deposit operations have experienced difficulties in recent years, with total deposits declining by 7% between the first quarter of 2022 and the third quarter of 2023. In 2022, the US Federal Reserve began pursuing quantitative tightening (QT), or reducing deposit balances. It hurts the balance sheet by not reinvesting all the proceeds from maturing securities. Interest rates also began to rise rapidly. As a result, banks’ funding costs have risen, putting pressure on their interest margins gradually.
The Fed last raised rates in July 2023, suggesting it expects one rate cut this year. QT is also expected to end, and central banks began slowing the pace of balance sheet reductions in June. As a result, we expect U.S. banks’ commercial deposits to grow 2% between the third quarter of 2023 and the first quarter of 2024, and continue to expand through the rest of this year, potentially showing up to 4% annual growth. has been done. . Emerging trends point to similar annual growth rates for the next three years, but a change in Fed action could change this forecast.
For bank executives, increasing and retaining deposits and improving profit margins are likely to be top priorities. As interest rates rise, customers’ price sensitivity to deposits has changed significantly, requiring consideration of nuanced deposit strategies.
Bank executives need to consider nuanced deposit strategies as customers’ price sensitivity to deposits changes significantly as interest rates rise.
Banks can grow in this environment by building and nurturing deep relationships with customers, devising effective pricing strategies, and achieving the right balance in terms of market and customer segments to build long-term structures. It is important to set yourself up for success.
US deposit situation
U.S. bank deposits fell sharply in 2022 and much of 2023 as the Fed pursued quantitative tightening, but began to recover in the second half of 2023. Despite the challenges posed by the local banking crisis in early 2023, commercial deposits stabilized.
Strategies to keep your deposits balanced
To succeed in this competitive environment, banks position themselves for long-term success by building deep customer relationships, devising effective pricing strategies, and pursuing the right markets and customer segments. There is a need.
The commercial deposit environment for the remainder of the year is expected to provide opportunities for deposit-led growth. For banks to be successful in the years to come, they will need to adopt customer-specific pricing strategies and consider customer price sensitivities.
