U.S. banks might see deposits decrease for the first time in several decades, The Wall Street Journal wrote Sunday (April 10).
The last two months have seen bank analysts cutting their expectations for deposit levels at big banks, with the 24 banks making up the KBW Nasdaq Bank Index, the benchmark, are likely to see a 6% decline in deposits this year.
Those banks make up almost 60% of what was $19 trillion in deposits in December.
Analysts don’t know if there’ll be a full-year decline, but even the possibility was not a consideration just months ago. A decline would mark the first time since at least World War II.
Bank deposits have reportedly grown at “unprecedented” levels during the pandemic. The report notes that at the end of February, analysts had been forecasting a 3% increase, though analysts have cut $1 trillion from their estimates since then.
The dramatic change shows how the Federal Reserve’s rate hiking cycle has landed on the economy overall, with forecasts showing sharp increases in the Fed’s core interest rate to fight the inflation. That, in turn, will ripple through the banking industry too, and the Fed plans to watch how customers and businesses deal with stored-up cash.
The WSJ writes that a decline won’t hurt the banks, with a flood of deposits becoming a headache beforehand, with banks getting close to regulatory limits on their capital.
The industry reportedly had $8.5 trillion more in deposits than in loans. Loan demand might go up – and banks need deposits to fund the lending. But the money in deposits is “more than enough.”
PYMNTS wrote that the economy has been seeing many shifts in the last few years – with numerous factors, more U.S. consumers than ever are seeing soaring rents on fewer homes.
That will see more FinTechs and big names in finance coming in to improve things. They have been working on adding new housing search capabilities, innovative payment solutions and other such things.