The deposits business is a quintessential banking service: customers deposit money in an account trusting their bank to safeguard their money and to ensure that it is available to them as and when they need it. And based on the type of account they opt for, the bank pays them an interest on the deposits as it is these funds the bank itself hands out as loans to other customers. It is therefore no surprise that the size of a bank’s deposits base is often seen as a strong indicator of customers’ trust in that bank. After all, if depositors think that their money in a particular bank is not safe, they are free to empty their accounts – something that may result in a run on that bank if a large number of depositors hold such an opinion.
By this yardstick, JPMorgan Chase (NYSE:JPM) would have the distinction of being the country’s most trusted bank with the largest deposit base of them all, followed by Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC). No doubt, equating the size of a bank’s deposit base with the notion of trust in the bank sounds too simplistic. But in this article, which is part of our continuing series on the comparison of the country’s biggest banking groups, we highlight how customer perception has actually impacted the banks’ deposits.
Deposits can be categorized into a number of different types based on the amount of liquidity offered – from current deposits which are highly liquid to time deposits which lock-in the money for a specific period of time. But from a bank’s point of view, there are just two types of deposits: those that bear interests and those that don’t. As a general rule, the more liquid the funds in the deposit, the less interest they earn. So current deposits fall under the non-interest-bearing category whereas savings accounts and term deposits are of the interest-bearing type.
The table below summarizes the average value of deposits some of the country’s biggest banks held each quarter over the last two years. The data has been compiled using figures reported by individual banks as part of their quarterly announcements and include both interest-bearing and non-interest-bearing deposits.
|(in $ billions)||Q1’11||Q2’11||Q3’11||Q4’11||Q1’12||Q2’12||Q3’12||Q4’12||FY’11||FY’12|
|Bank of America||1,023.1||1,035.9||1,051.3||1,032.5||1,030.1||1,032.9||1,049.7||1,078.1||1,035.8||1,047.8|
The table above shows a significant improvement in JPMorgan’s deposit base, up by nearly 25% over the last eight quarters. In the third quarter of 2011, the bank surpassed Bank of America to become the country’s biggest bank in terms of deposits held. Wells Fargo showed a similar spurt of growth over the period and it looks poised to grab the number two position from Bank of America over the coming quarters.
As for Bank of America, its deposit base has remained more-or-less constant over the period.
These observations only lend more support to the point we made earlier – as the perception of a bank’s safety improves, so does its deposit base. Despite the London Whale trading debacle last year, JPMorgan retains a strong image for customers as a bank that held its ground even during the economic recession of 2008. Similarly, Wells Fargo has shown an increased presence in the industry with its strong grip on the mortgage industry. On the other hand, the litigation hurdles Bank of America continues to face has reflected in its retail banking business too, as the uncertainty linked with the lawsuits has kept its deposit growth negligible.
Each of the other three banking groups in the table above have different reasons for growth in deposits. While Citigroup’s geographical diversification grants it access to more markets to grow its deposit base, the figures fluctuate considerably due to the resulting currency translation effects. U.S. Bancorp has steadily grown its presence in the country through small acquisitions as well as innovation, whereas Capital One’s exponential growth in deposit figures is a result of the bank’s acquisition of ING Direct’s U.S. business that was completed early last year.