State of Deposits: What’s on the horizon

A few takeaways from the conversation:

1. Bank failures changed deposits: After the failures of SVB, Signature and First Republic, mid-tier banks were under pressure from investors and regulators to demonstrate a strong deposit foundation. That changed mid-tier pricing and prompted a cash buildup that rippled through deposits across the industry.
2. ‘Renting deposits’: Rate-sensitive funds — highly mobile, higher-wealth accounts, for example — tend to move around but only for a limited time. When there are fewer alternatives, that money returns to the primary institution.  
3. Interest rates to shift behavior? Deposit behavior has stabilized in 2024 and is projected to continue into 2025, though gradually. Fed benchmark rates stand near 5% with one cut signaled for this year and more next year. BAI Research indicates that only when there is less than a 2% gap in the rate differential between traditional banks and direct banks, does the larger tide of money flow back to primary institutions.