Regions Financial Managing Deposit Costs, Expecting Fed Interest Rate Cuts

Regions Financial is shortening the tenors of certificates of deposits (CDs).

This is part of an effort by the bank to manage deposit costs in preparation for the Federal Reserve to start cutting interest rates, Seeking Alpha reported Wednesday (Feb. 21), citing comments made by Regions Financial Chief Financial Officer David Turner.

Speaking Wednesday at the Bank of America Financial Services Conference, Turner said that managing deposit costs will be the “real challenge” for Regions Financial as it prepares for those rate cuts, per the report.

Repricing the bank’s balance sheet should benefit deposit costs and thus net interest income (NII), Turner said in the report. Turner added that he expects NII to bottom out in the second quarter.

Turner said at the event that Regions Financial aims to manage this by managing those costs, managing promotional rates and shortening the tenor of a CD to five months “so that we have a couple of bites at the apple,” per a transcript posted by Regions Financial. He added that the bank is starting to see not only its own promotional rates but also those of its competitors start to come down.

Banks hiked their deposit rates last spring to woo back consumers from higher-yield alternatives like Treasury bills and money market funds. They began to raise their rates, especially on CDs, in a move that was reported to be good news for consumers but bad news for banks.

By October 2023, America’s largest banks were reportedly telling investors that their profits from high interest rates could soon take a hit as they offer their depositors higher rates — eating away at profits on the rates the banks are charging for loans.

There had been upward pressure on deposit rates at the time due to the competitive market environment.

It was also reported in October that analysts and investors were closely monitoring banks’ net interest income, which is the difference between the interest rate earned on loans and the interest paid on deposits.

Rising deposit costs and intensified competition were putting pressure on NII, leading to a drop in revenue for banks.