For the past few years, I’ve written about the varying circumstances surrounding Surge Deposits. From “the death of” to the “resurgence,” it seems to be a consistently hot topic – this year, with a slight twist. While previously keeping a close watch on the influx of demand deposits, we’re now seeing increased pressure on funding flowing either from non-maturity deposits (NMDs) into higher costing CDs, or out of financial institutions all together.
Before we get further, if you haven’t yet read my other blogs discussing Surge Deposits, or could use a refresher, click here to do so.
Because rates continue to rise and consumers now have a variety of attractive investment options, organizations are presented with the challenge to predict customer behavior. Will they keep their funds in the same NMD accounts that their money’s been sitting in? Will they opt for an attractively-priced CD within the same institution? Will they move their funds to another organization all together? Or, will they venture to the US Treasury market, stock market, or some other alternate investment opportunity? In 2023 and beyond, the options are seemingly endless.
Regardless of “inward” surge or “outward” surge, regulators still want to see how your organization will account for these movements. With so many options, attempting to anticipate customer behavior is no small task. So, how does a financial manager keep a realistic pulse on the impact of this outgoing surge behavior on the liquidity, cash flow, and interest rate risk positions of the financial institution?
Surge Deposits: 3 Regulatory Expectations
Director of ALM Advisory Services