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5/3/2018 The Biggest Banks Are Gobbling Up Deposits. Here’s Who’s Not – WSJ

https://www.wsj.com/articles/the-biggest-banks-are-gobbling-up-deposits-heres-whos-not-1524999612 1/3

Last year, businesses started pulling money from their bank accounts at Fifth Third Bancorp .

In response, the Cincinnati lender started offering higher interest rates to some consumers. But the bank still ended 2017 with slightly fewer deposits, the first drop in seven years.

Welcome to the new world of Main Street banking, where deposits are starting to head out the door after years of growth. This month, major regional banks reported the increasing competition for deposits in their first-quarter earnings. Some lenders, including Dallas’s Comerica Inc. and Regions Financial Corp. of Birmingham, Ala., lost deposits compared with a year ago. Others are still adding deposits, but at a much slower pace than recent years.

The drain represents another consequence of the Federal Reserve’s decision to raise short-term rates, which influences the mortgage market, stocks and other corners of the economy. The higher rates now available in money-market funds and other investments are luring clients to move their money out of bank accounts that still offer minimal interest rates.

In 2017, 10 of 22 major regional banks experienced declining U.S. deposits, compared with only two the year before, according to a Wall Street Journal analysis of Federal Deposit

Insurance Corp. data. The smallest U.S. banks, which tend to be community lenders with a handful of branches, have also seen deposits decline, according to an analysis by investment bank FIG Partners.

The deposit declines aren’t big enough yet to hurt bank earnings, which have broadly been strong thanks to the recent corporate tax cut in the U.S.

Also, banks have accumulated so many deposits in recent years that they still have far more than they need to fund loans. At the end of last year, U.S. banks lent out only about

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The Biggest Banks Are Gobbling Up Deposits. Here’s Who’s Not JPMorgan Chase, BofA, Wells Fargo see gains; Fifth Third, Comerica and Regions Financial lose ground

Fifth Third Bancorp ended 2017 with slightly fewer deposits, the �irst drop in seven years. PHOTO: CHRISTOPHER DILTS�BLOOMBERG NEWS

April 29, 2018 7�00 a.m. ET

By Christina Rexrode and Rachel Louise Ensign

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5/3/2018 The Biggest Banks Are Gobbling Up Deposits. Here’s Who’s Not – WSJ

https://www.wsj.com/articles/the-biggest-banks-are-gobbling-up-deposits-heres-whos-not-1524999612 2/3

72% of their deposits. That is why some banks experiencing deposit declines say that they were fine with losing some less desirable customers, like those holding high-yielding certificates of deposit.

But the declines could mark the start of an important industry shift where deposits become less plentiful and Main Street banks do more to compete for them. Regional banks lack the national footprint of JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., which attract consumers through their ubiquitous branch networks and flashy mobile-banking apps.

The three biggest banks added a combined $118 billion in U.S. deposits last year. As a group, the nearly two dozen regional banks added a net amount of roughly $55 billion.

“It’s a big concern for us and the industry,” said Darren King, chief financial officer of Buffalo, N.Y.-based M&T Bank Corp., where deposits fell 6% to roughly $91 billion in the first quarter. JPMorgan Chase, Bank of America and Wells Fargo “built an M&T, probably an M&T and somebody else, over a short period of time.” The bank said that about half of its year-over-year decline was intentional and tied to a past acquisition.

Deposits are the lifeblood of banks and a key factor in profitability. Banks use deposits to make loans, so when they pay higher deposit rates, they make less money. When a bank loses too many deposits, it could be forced to rein in lending or pursue more expensive funding.

For years following the financial crisis, banks have been flush with deposits. The Fed kept interest rates at historic lows and customers had few other choices about where to put

their savings. The central bank’s bond-buying program also pumped more money into the financial system, which brought more deposits to banks.

But in recent years, the Fed has raised a key interest rate six times and started unwinding its bond portfolio, which generally takes deposits out of the financial system. Rising interest rates have given savers and businesses more alternatives to earn a yield on their money. Now banks are preparing to fight each other for deposits. “The arms race is under way,” said Gerard Cassidy, an analyst at RBC Capital Markets.

Last year, deposits at Salt Lake City’s Zions Bancorp fell about 1%. The bank said it plans to entice corporate customers to bring back their deposits by offering higher rates and other services. CEO Harris Simmons said the Fed’s actions have forced banks to rethink how they approach deposits. “There was a time when we and other banks were just flooded with” deposits, Mr. Simmons said.

Continued declines in deposits could pose a major challenge for regional lenders at a moment investors are otherwise bullish on their prospects. The banks are among the

biggest winners of the new low corporate tax rates and the Senate recently passed a bill that would loosen their regulations.

Deposits from corporate accounts have often been the cause of the broader deposit declines at regional banks. Business customers tend to be more demanding about rates, since even a small change in rates on large corporate deposits can translate into millions of dollars.

“There’s not one of our clients that isn’t very concerned about their commercial deposit portfolio,” said Michael Rice, head of the commercial banking practice at consulting firm Novantas.

Fifth Third, which increased rates on some consumer deposits, acknowledges the years of easy deposit gathering are gone. “Companies have other viable alternative investments to park their cash,” said Brennen Willingham, an executive in Fifth Third’s treasury operation. “Versus past years, where you might as well just leave excess cash at your bank.”

Write to Christina Rexrode at christina.rexrode@wsj.com and Rachel Louise Ensign at rachel.ensign@wsj.com

Appeared in the April 30, 2018, print edition as ‘Regional Banks in Fight for Deposits.’

5/3/2018 The Biggest Banks Are Gobbling Up Deposits. Here’s Who’s Not – WSJ

https://www.wsj.com/articles/the-biggest-banks-are-gobbling-up-deposits-heres-whos-not-1524999612 3/3

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