Understanding Changes In Loan-To-Deposit Ratios For The Largest U.S. Banks Over Recent Years

The loan-to-deposit ratio for the largest U.S. banks has trended lower over the last five years – primarily because their deposit base has grown at a faster rate than their loan portfolio over this period.

The table above has been compiled using data provided by the banks in their annual SEC filings, and takes the ratio of the average loans outstanding with the average total deposits for each year. Details about the changes in loan portfolios for these banks since 2012 can be found here, while the trends in deposits is explained here.

A loan-to-deposit (LDR) ratio of 1 (100%) indicates that a bank lends a dollar to customers for every dollar that it brings in as deposits. But this also means that the bank doesn’t have cash on hand for contingencies. A combination of prudence and regulatory requirements suggests that a loan-to-deposit ratio of around 80-90% is a good target, depending on the bank’s business model. Among the banks detailed here, U.S. Bancorp has enjoyed the highest LDR figures historically thanks to its extremely risk-averse business model that focuses almost entirely on traditional banking services. On the other hand, the two banking giants JPMorgan and Citigroup have significant custody banking services, which require them to keep more of their deposits liquid – explaining their lower ratio figures.

That said, the overall trend of a year-on-year decline for most of the banks here is in contrast to the trend seen for the U.S. banking industry over this period. Data compiled by the Federal Reserve shows that the LDR figure for the industry first fell from 80.5% in 2012 to 75.5% in 2014 before recovering to almost 80% by 2016. Notably, the change in the ratio for JPMorgan mirrors this trend. U.S. Bancorp and Wells Fargo have seen their LDR decline steadily thanks to their above-average deposit growth over recent years, whereas the decline for Bank of America and Citigroup can be attributed to their focus on running off non-core loans since the economic downturn.

In view of the Fed’s strong outlook for interest rates over coming years, we expect deposits to grow at a slower rate than loans in the near future – something that should help LDR ratios for these banks improve going forward. The chart below shows Citigroup’s consumer banking deposit base over the years and our forecast for it going forward. You can see how changes to this figure affects our price estimate for the bank by modifying the forecast below.

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

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