$597B in Uninsured Deposits Leave Banks in Q1

In Q1, banks saw a significant drop — $597.5 billion — in uninsured deposits according to a S&P Global Market Intelligence report. That represents a 7.8% quarter-over-quarter dip and a 15.2% year-over-year drop.

Of the 25 U.S. banks with at least $25 billion in assets as of March 31, 20 saw a quarter-over-quarter decline. The largest drop in uninsured deposits was at BankUnited, at 28.6%.

Of the “Big Four,” Citigroup, Bank of America, and Wells Fargo saw drops. JPMorgan Chase saw a 1.9% increase, probably an effect of having acquired First Republic Bank after the latter failed.

“I think it is fine, but the idea that we were having outflow definitely connects to [CRE],” Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence, tells GlobeSt.com. “Deposits are more precious today. The true value of any bank is its deposit franchise. If you’re worried about your deposits being fleeting, then your liquidity is challenged. The panicked flow of outflows in March and early April seems over, thank goodness.”

Unlike that period where depositors were worried about bank stability, what may be pulling the money out is the promise of better returns via Treasurys for cash that companies don’t need to keep on hand for operational needs.

Among the most recent Treasury auctions, annualized investment rates have been anywhere from 5.113% to 5.872%. The most recent 52-week bill topped 5.2%, while a 30-year bond issued on June 15 at 3.625%.

“This migration of funds out of the system we think is going to continue mainly because of that spread,” says Stovall, who estimates that the outflow could continue during 2023 at a 4% rate.

What this means for banks and CRE loans isn’t completely clear. There are other big lenders, like life insurance companies and CMBS markets.

“Three weeks ago, we heard, ‘We’re still in business,’” Stovall says. “That has morphed into, ‘We don’t think incremental growth makes as much sense as it used to.’ It doesn’t mean the spigot is shut off completely, but they will be tighter on loans.”

Trying to paint the entire sector with a single brush is difficult and misleading. There are institutions in fine shape for lending. In a recent community bank conference, according to Stovall, two banks through current conditions were an opportunity, as borrowers who don’t have as many options as usual might be amenable to terms that are more advantageous for the bank.

Banks also may not be in as disadvantaged a situation when it comes to real estate loans as some think.

“I’m already hearing every fund in the world is raising money to buy real estate from banks,” Stovall says. “But the banks don’t have to sell, and the prices being offered are too low. I think that money will burn in their hands eventually.”