Over the last decade and a half, there has been a sort of dance when it comes to deposit stability. Following the Economic Crisis, we saw a massive “surge” of funds into banks and credit unions as depositors sought safety and a place to “park” money until better returns were again available in the market. In early 2020, after market rates had jumped a bit, I crafted a blog declaring the death of surge deposits, but then quickly had to shift as we saw a new round of “surge deposits” following the Government’s release of trillions of dollars in Covid-related Stimulus funds. Then, as deposit rates shot up in 2023, we saw a massive movement of funds from low-cost checking and savings deposits into higher-yielding CDs and MMDAs. Now, as we near the end of 2024, we’re left with a lot of deposit-related questions. Specifically,
- Is this period of deposit migration finally over?
- How stable are our remaining deposit balances?
- Were our IRR model deposit pricing and decay assumptions right, and/or do we need to make changes in light of historical performance and/or future expectations?
- How much impact do any of these assumptions really have on our model results?
To help answer those questions (ones examiners will certainly be asking), we’d strongly suggest that you be sure that your asset liability management program includes backtesting, sensitivity testing, and decay rate and deposit trends studies.