Understanding Deposit Growth At The Country’s Largest Banks

Data compiled by the Federal Reserve shows that the total size of deposits held across all commercial banks in the country is currently a little above $9.9 trillion. ((Assets and Liabilities of Commercial Banks in the United States (Weekly) – H.8, Federal Reserve Website)) Considering the rate at which deposits have grown over the last couple of years, this figure is likely to cross the $10 trillion mark in this quarter. While a steady growth in deposits is expected over time, it is important to note the marked pace of growth in deposits over the last decade. Deposits held at all banks jumped from $5 trillion in late 2004 to $7.5 trillion in mid-2009 to almost $10 trillion now.

There are a multitude of factors that are responsible for an overall increase in deposits. But the predominant reason for this trend over the last few years is the low interest rate environment that has existed since the economic downturn of 2008. With not too many lucrative investment options around, individual and institutional investors shifted a bulk of their assets into deposits. This, in turn, resulted in shrinking net interest margins for the banks as their interest expenses grew in proportion with the deposits, even though their interest income remained under pressure.

This article details the changes in deposits at the country’s four largest banks – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) – over the last three years, and also gives an idea of what to expect over the coming years.

See the full Trefis analysis for Wells Fargo | JPMorgan | U.S. Bancorp | Bank of America| Citigroup

The following table shows the average quarterly value of all deposits held by these four banks over the last ten quarters. The data has been compiled using figures reported by individual banks as part of their quarterly announcements and includes both interest-bearing and non-interest-bearing deposits.

One thing that stands out from the table above is the share of these four banks in the country’s deposits market. At the end of 2013, the banks had a little less than $4.5 trillion in deposits among them – nearly 45% of the $9.9 trillion in total deposits for all commercial banks. This just highlights the strong grip these banks have on the country’s banking industry.

JPMorgan leads the pack by a decent margin with over $1.2 trillion worth of customer deposits across its global branch network. Having grabbed the top spot from Bank of America by the end of Q3 2011, the diversified financial giant accounts for about 12.5% of all deposits in the country. The only quarter in which the bank reported a decline – Q2 2012 – is when it revealed a multi-billion dollar loss from the London Whale incident. The steady growth in its deposit-base since then shows that customers did not take much time to put the debacle behind them.

Wells Fargo and Bank of America currently hold a similar amount of deposits and are each responsible for a little over 11% of the market. Their trajectory over the period, however, has been very different, with Wells Fargo reporting a 24% growth in deposits compared to growth of less than 6% for Bank of America. Wells Fargo came out of the economic downturn without any major legal trouble despite having swelled in size from its acquisition of Wachovia. The bank also gained from the mortgage refinance wave, as thousands of customers who switched to Wells Fargo’s mortgage offerings also moved their deposit accounts to the bank. On the other hand, Bank of America faced (and continues to face) the largest losses in the aftermath of the economic downturn and is still hard at work cleaning up its balance sheet. Customers have clearly been cautious about parking their cash with the latter.

With a share of just under 10% of the market, Citigroup comes in at fourth place. If one were to adjust Citigroup’s deposit size for currency fluctuations, it actually does not fare much better than Bank of America, as the globally diversified banking group was also one of the hardest hit banks in the country. The chart below captures Citigroup’s average deposit size each year.

While this covers the trend witnessed over recent years, the environment is expected to change over coming quarters. As the Fed tapers its asset purchase program, the resulting reduction in liquidity in the economy should help ease the pressure on interest rates. This in turn will increase the investment options that are available to retail and institutional investors, and they will prefer to move their cash away from bank deposits to other avenues. Accordingly, bank deposits will grow at a slower pace over coming years than what has been observed since late 2010.

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