We’ve spoken at length about the large amount of deposit runoff that banks have faced since the Fed started raising interest rates in Q1 2022. Since then, $1.2 trillion, roughly 7% of the total deposit base, has left the banking sector. To contextualize just how unusual this is: 2022 was the first full-year decline in total deposits since the FDIC started releasing data in 1992. Many institutions have simply never seen this before.
Digging in deeper reveals something unexpected, but perhaps not completely surprising. The deposit runoff has been completely driven by uninsured deposits. Between Q1 2022 and Q2 2023, $1.5 trillion uninsured deposits flowed out of the sector while $337 billion insured deposits flowed in. Faced with the most aggressive deposit runoff in history, banks have actually seen deposit growth in aggregate for their insured funding.
Large-value depositors, those with more than $250,000 in funds, left the banking sector looking for higher-yielding alternatives and, post the banking turmoil, safety and stability, driving the uninsured outflows. However, banks continue to see healthy growth in insured deposits, which provide the safety that is so central to an institution’s value proposition. While uninsured outflows are likely to continue, insured deposits, and products like sweep / reciprocal accounts that can provide extended insurance to large-value depositors, can continue to drive deposit growth during this unfamiliar period.
Best,
The ModernFi Team
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Sources: FHLB Advances are an average of FHLB Boston, FHLB Chicago, and FHLB Des Moines. Brokered CDs are an average of Fidelity and Vanguard. Listed CDs provided by National CD Rateline. US Treasurys provided by WSJ. SOFR provided by CME. Deposit data provided by the FFIEC Call Reports.
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