Big Banks Are Taking A Bigger Bite Out Of The Deposit Market

By Steve Kinner
Senior Managing Director

Big BankBig banks are gaining a bigger and bigger piece of the deposit market, and as American Banker recently noted, this is “no one time blip.”1

According to the Federal Deposit Insurance Corp.'s Summary of Deposits report, large banks saw deposits rise 6.67 percent from June 2015 to June 2016, while that same number dropped by 8.71 percent at community banks.2

There are lots of reasons why smaller banks are getting outpaced by larger banks when it comes to deposit growth—consolidation, changes in technology (including advancements in mobile banking), and regulatory changes are all factors. But there is one thing all the above causes have in common: for the foreseeable future, they are here to stay.

A handful of community banks have suggested to us that the flow of deposits (including long-term deposits) towards big banks is not of concern because their banks are currently flush with cash. Unfortunately, given expected changes in Federal Reserve policy with regards to interest rates, today’s deposit surplus could quickly become tomorrow’s shortfall.

Back in the summer of 2008, just as the financial crisis was gathering steam, attracting core deposits was a priority. At that time, the median loan-to-deposit ratio for the largest banking companies was above 105 percent, showing an imbalance of loans exceeding deposit levels.3 These imbalances were not something new, but rather part of a larger trend starting in the 1990s that saw banks chase large-dollar deposits—indeed, nearly any size deposit—as growth in traditional deposit funding sources stagnated and failed to keep up with the increase in bank assets.

Whether history repeats itself in the near- or long-term, the smart play for small banks is to focus on large-dollar relationships. Here’s why:

Increasing Profitability. Bringing in large-dollar deposits can increase bank profitability in a number of ways. For starters, it can help a bank to leverage fixed costs—for example, to spread per-customer acquisition and maintenance costs over a larger deposit base.

Building a Fence around the Best Customers. Good clients, particularly large-dollar customers, are hard to find. And once you lose them, it’s even harder to get them back.

Tools for the Future. Corporate cash holdings have doubled since 2008, and the appetite for safe investments is expected to remain big.4 If history is any indication, now is the time for forward-thinking banks to position themselves competitively for the future by attracting profitable relationships and protecting their best customers. These goals can be achieved more easily with two great tools—ICS® and CDARS®.

Moreover, now is actually a great time to go after large-dollar deposits. Money market reforms are inducing many investors, particularly institutional and public fund investors, to move dollars out of prime funds and into bank deposits. At the same time, relatively speaking, new regulations make it more expensive for large banks than small banks to hold these deposits, leading to large-dollar deposit gathering opportunities for community banks across the nation.

Read more about the current opportunity in Why the Impact of MMF Reform is Likely to Benefit Community Banks. Additionally, if you have questions about ICS or CDARS, or would like to discuss anything further, please email

1 Andy Peters, “Host of Factors Dim Deposit-Growth Outlook at Small Banks,” American Banker, October 11, 2016.
2 Ibid.
3 Paul Davis, “In Cash Glut, Banks Try to Discourage New Deposits,” American Banker, July 2010.
4 Matt Krantz, “A third of cash is held by 5 U.S. companies,” USA TODAY, May 22, 2015.