Is Fed and FDIC Data on Dropping Bank Deposits a Blip or Trend?

For banks — and specifically for their consumers: No deposit, no return?

The bedrocks of finance — the commercial banks — are seeing at least some turbulence as customers draw down on deposits. And to keep customers in place, and the funds in place, there might be some fine-tuning of business models in the mix.

Late last month, the Federal Deposit Insurance Corp. (FDIC) reported that banks saw their deposit based decline by $472 billion in the first quarter of 2023, as measured from the end of the year. That’s a 2.5% drop in the total deposits held by banks. And it’s the worst decline seen in the nearly 40 years that the FDIC has been collecting that data.

Perhaps that’s no surprise, after all, in a quarter that saw the collapse of Silicon Valley Bank and Signature Bank, where the debate and fears that depositors’ uninsured funds might be lost spurred bank customers to grab what they could. Indeed, the FDIC noted that “this was the fourth consecutive quarter that the industry reported lower levels of total deposits. A reduction in estimated uninsured deposits  (down $663.3 billion, or 8.3%) was the primary driver of the quarterly decline.” That capital flight was partially offset by a boost in insured deposits, which surged by $255 billion, or 2.5%.

The FDIC also reported that the rate of loans and leases 30 to 89 days past due decreased 4 basis points from the prior quarter, but increased 4 basis points from the year-ago quarter to 0.52%.

The Fed Weighs In

More recently, the St. Louis Fed reported on Friday (June 2) that the total of deposits at banks was down about $13 billion in April, which would take the decline even further out than the FDIC data. With a bit more granular detail, the Fed also provides a week-by-week tally of bank assets and liabilities.

For the week that ended May 24, per the Fed data, total deposits stood at about $17.1 trillion, down from the previous week’s $17.132 trillion, and down from the $17.248 trillion at the end of April. The Fed data show some shifting within that deposit pantheon: Large time deposits, which offer higher rates of interest than savings accounts, stood at $1.943 trillion in the most recent reading, up from $1.9 trillion at the beginning of May, and up significantly from the $1.65 trillion at the end of last year.

As we reported last month, “bank deposits are part of a long-term relationship, but modern communications technology and social media have made business relationships less sticky.”

The key determinants of whether banks’ deposit flight will be a blip (reversing the declines seen in the past few years) may boil down to a raising of deposit insurance caps, even if consumers are urged to pay for those additional layers of protection.

And as has become apparent as the great digital shift has now become the great omnichannel shift — especially for banks that are not the giants of the space such as JPMorgan — integrating everything from physical branches to ATM locations and mobile digital conduits can and do go far in cementing customers’ trust that their money is accessible and safe (and need not be shuttled around).