“Deposits are the lifeblood of banks.”
— Bob Chapman, President
Bank of the James
These days, you hear about a lot of financial institutions seeing huge increases in their deposits. Some financial institutions are seeing their deposits double over last year. Even JPMorgan Chase, an international megabank, was able to take in an extra $87 billion.
Reality Check: Now is not the time to pat yourself on the back. Everyone’s deposits are up (well, not everyone, but most). This is money just walking in the door.
A survey last fall by the ICBA showed that 70% of community banks were seeing deposits grow year-over-year. More than a quarter of the banks surveyed saw deposits grow by at least 11%. And a recent survey by CUNA found that one-fourth of credit unions were enjoying above-average growth.
One in five people said they were likely to move at least some of their funds to another institution soon. Nearly one in 10 were likely to move all their money.
— Nielsen survey
Key Fact: In a recent Nielsen survey of 3,000 consumers, one in five said they were likely to move at least some of their funds to another institution in the near future, with nearly one in 10 likely to move all their money.
Key Questions:
- What are you doing to keep your existing deposit base from defecting to other financial institutions?
- How much more could you be gaining if you had an aggressive deposit growth strategy?
- What are you doing to retain your newly-won deposits over the long term?
Both Mark Zandi, chief economist at Moody’s Economy.com, and Cam Fine, chief executive of the ICBA, both agree: The movement of money we’re experiencing in the financial industry is something we haven’t seen since the Great Depression.
From August to September last year, bank deposits rose by more than $158 billion, as investors yanked money out of stocks, bonds and failing financial institutions. $50 billion poured out of the stock market in the month of September alone. Where did people put it? In the relative safety and security of liquid deposits.
“People are panicked, and they want something as close to the mattress as they can find,” says Moody’s Zandi.
And that’s why many institutions are touting their financial strength.
“Banks’ emphasis on safety certainly scratches where it itches for consumers in this current environment,” says Greg McBride, a senior analyst at Bankrate.com.
McBride says deposits have always been a competitive business for financial institutions. But at a time when bank capital has been whittled away by loan losses, and banks are scrambling for low-cost funding, growing deposits has become more important.
That certainly helps explain why competition for deposit dollars has become as fierce as its ever been.