This write-up is a bit of a sequel to our Q1 recap; while many of the trends persisted in Q2, there were several new observations. Let’s dive in:

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Highlights

• Zooming out, roughly $1.5 T of deposits have left the banking system since the high point in mid-2022…and, we may have a ways to go
• Several large regional banks showed strong gains in Q2, following outflows in Q1
• Running counter to a popular narrative, mega-banks saw significant deposit outflows, consistent with Q1
• Further, banks in the $1-$50b asset range are seeing net inflows - again, consistent with Q1
• Regionally, northeast institutions saw the biggest pick-ups while the west coast and TX continued to lag

System-wide deposits continue to decline

The following chart shows the profound jump in deposits during the pandemic. Prior to early 2020, there is a very steady growth trend (which can be tracked back to the mid-1990s). If that trend had continued through present day (see the gray line), there would be ~$14.8 T of deposits in the system. While overall deposits have dropped ~$1.5 T since the peak in 2022, this analysis suggests there may be another ~$2.5 T to go.

Looking specifically at call report data, the rate of drawdown of deposits slowed in Q2. But, the overall decline has been more than half a trillion dollars since 12/31/2022:

Regional banks rebounding after Q1 outflows

While many banks, especially the large regionals and super-regionals, witnessed outflows in Q1, the recent quarter marked a rebound for several. Three, in particular, saw very strong gains:

‍Mega-banks continue to see deposit outflows

With the notable exception of JPMorgan Chase (which was only buoyed in Q2 by the deposits from the FRC deal), the mega-banks have seen a mixed bag of results over the past six months. A popular narrative has declared these banks (and, as a formal group, the G-SIBs) as the undisputed recipients of deposits in a “flight to safety.” However, the data tell another story. In fact, three of the top five banks (by asset size) have lost deposits in each of the last two quarters:

Community banks continue to see inflows

As we noted in Q1, the only asset band seeing a net inflow of deposits was the $1-10 B group. This trend continued in Q2 and expanded into the $10-50 B category. 

Regional flows showed a momentum shift to the northeast

In a break from last quarter’s results, banks in New England and the New York area saw the greatest new inflows. While both regions witnessed outflows in Q1, they were able to turn the tide and move to the top of the list. The deposit shift from SF-based First Republic weighed on the West Coast.  

Parting thoughts

As deposits continue to move and the overall available pool continues to shrink, banks will remain under pressure to maintain an optimal funding mix. In Monit’s Q2 SMB survey, over 40% of businesses indicated opening and funding an account at a new institution. Given the value of the SMB customer segment and the mobility of their deposits, FIs would be well-served to court these customers with sticky, value-added products…like Monit (schedule a demo here)!

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Please check our blog and follow Monit on Linkedin for additional insights and commentary.

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Note: above analysis, unless otherwise noted, is based on FFIEC data

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