An S&P Global Insights survey says bank executives are getting less optimistic as they expect to pay more to continue keeping deposits and to rely more on deposit rate specials.
Based on S&P’s latest quarterly U.S. Bank Outlook Survey, US bank executives who project deposits to increase at their institution declined to 47.3 percent in the second quarter from 53.1 percent in the first quarter and 51.1 percent in the fourth quarter last year.
Even the more bullish responses, from executives expecting 5 percent deposit growth and more in the next 12 months, fell to 7.3 percent of the respondents from 11.6 percent and 13.5 percent in the prior surveys, respectively.
Bankers who expect to attract the same amount of deposits they have now increased to 20.7 percent from 16 percent in the first quarter and 12 percent in the fourth quarter of 2022.
The sentiment on which types of deposit accounts would see declines remain unchanged with 48.7 percent of the surveyed seeing declines in consumer deposits, 26 percent in small business deposits, 16.7 percent in government, and 14.7 percent in corporate deposits, among others.
Two-thirds or 66.7 percent of the respondents believe that they will hold on to or even grow their uninsured deposits in the next 12 months, while 30 percent think that their uninsured deposits will slightly decline by less than 10 percent.
“Yet, the exact amount of uninsured deposits held at banks is murky as several banks have restated the amount of uninsured deposits previously given in their call reports. In late July, the FDIC issued a statement that called for call report amendments from banks that had “incorrectly reduced” reported uninsured deposits by omitting intercompany deposits or deposits collateralized by pledged assets,” S&P said.
Both S&P and FDIC did not name any banks but according to its July 6 report, S&P said 55 banks restated their fourth-quarter 2022 uninsured deposits in FDIC reports, then 22 banks followed suit with revisions in the first quarter.
Almost three quarters or 72.1 percent in the survey said they increased the use of deposit rate specials over the last 12 months, while 56.8 percent that they will likely increase the use of deposit rate specials in the next 12 months.
Aside from deposit rate specials, some of the largest sources of liquidity from banks the past year and moving forward include FHLB advances, deposits structured for insurance across multiple banks, liquidity through slowing loan growth, federal funds borrowing, bank term funding program, and liquidity through the sale of security investments.
The survey also showed that 14.9 percent of respondents say they do not currently conduct stress testing for deposit outflows, while 2.7 percent did not know if their bank conducted deposit stress tests. To those who conducted stress testing, the most common 30-day outflow assumption was at 5 to 9 percent.
Stress testing for deposit outflows can be one way that banks preemptively plan for finding additional funding in light of unexpected withdrawals and deposit runs. However S&P noted that awareness of “deposit stress testing” was varied among survey respondents.
