PYMNTS-MonitorEdge-May-2024

Beyond Big Names: How Community Banks and Credit Unions Can Attract Corporate Clients

corporate banking, financial institutions

The Federal Deposit Insurance Corp.’s latest data on deposits shows just how bifurcated the banking industry is, in terms of the largest players, home to the great bulk of overall deposits here in the states.

To that end, the top five institutions — ranked by the FDIC based on domestic deposit concentration — hold a staggering $6.5 trillion in deposits as of June 30, the latest report date as part of the “BankFind Suite” information. First on the list is JPMorgan, with more than $2 trillion, followed by Bank of America with $1.9 trillion, trailed a bit by Wells Fargo, with $1.4 trillion.

At the bottom of the Top 50 list is SouthState Bank, which has $37 billion in deposits.

Commercial deposits, a catch-all term, also includes business accounts. And in an environment where the Fed has cut rates for the first time in four years, the question remains as to whether the smaller banks — community banks and credit unions among them — can capture share of the corporates’ dollars and loyalty.

As we can see from a few of the big banks’ earnings reports from the commensurate June quarters, commercial deposit activity has been growing, at least as measured year over year.

In JPMorgan’s latest earnings report, commercial/investment banking deposits came in at $1 trillion, up about 5% over the June period last year, and up only slightly from the first quarter of 2024. In terms of business banking, (including banking and payments loans), the second quarter showed that commercial banking was $220.7 billion, down 1% quarter over quarter and up 4% year over year.

Bank of America’s latest results show that the company grew its middle-market loan balances 4% year over year, and deposits by 6% year on year and average deposits were $525 billion. Business lending revenues in the latest quarter stood at $2.6 billion, up from $2.4 billion last year but below the $2.6 billion seen a year ago.

With the new rate cuts from the Fed, the cost of debt is trending lower, but the rates paid on cash held in money market, CD and what we might term “traditional” savings accounts also falls. The “spread” that corporates earn on that carry — say, if they had funds in high-yield accounts — is therefore pinched a bit.

The question now is, what will happen to the corporate accounts? Might it be the case that smaller accounts will gravitate towards smaller, more locally-rooted financial institutions?

Generally speaking, the smaller players can (and do) offer higher rates on savings accounts and lower rates on loans, since a smaller footprint translates into relatively smaller overhead. As PYMNTS reported over the summer, there are at least some competitive considerations that go beyond the marquee “name” — PYMNTS Intelligence noted that 42% of SMBs have been choosing their primary banking relationships on the basis of online and mobile banking offerings.

As credit unions and community banks have been inking pacts with FinTechs to spur innovation, they can take advantage of the fact that 41% of U.S.-based smaller firms are mulling whether to sever ties with their extant primary bank within the year.