THE BATTLE FOR DEPOSITS IS HEATING UP: ARE YOU READY? By Achim Griesel and Dr. Sean Payant Source: U.S. Bureau of Economic Analysis (fred.stlouisfed.org) Core deposits, especially low-cost core deposits, have long been the key driver for franchise value in the financial services industry. That said, with the start of the pandemic and the ensuing influx of cash from stimulus checks and increased personal saving rates, financial institutions saw so much excess liquidity that bankers began to question the value of any deposits, including low-cost core deposits. Total deposits in FDIC-insured banks grew by over five trillion from the end of 2019 to the end of 2021. In the two years prior, deposits had grown just over one trillion. These same trends on a smaller scale held true for credit unions. Peak deposit growth happened in 2020. By September 2021, the personal saving rate was back at pre-pandemic levels. Deposits at financial institutions continued to grow, but at a much slower rate than in 2020. Finally, in March 2022, the data showed personal checking account balances dropped for the first time since Q3 2021. (See Graph Below) In addition, consumer spending is now soaring. According to a recent article in Bloomberg, the top four banks in the nation have seen a 27% average increase in consumer credit card spending for Q1 of 2022 vs. Q1 of 2021. Inflation is at record highs, and Federal Reserve Chairman Jerome Powell indicated in his most recent speech that multiple 50bp rate hikes should be expected in the remainder of the year, and as early as June and July. Unlike in previous rising-rate environments, financial institutions haven’t felt the same pressure to raise rates yet in light of the excess 24 | The Show-Me Banker Magazine
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