Dodd-Frank Act May Boost Already Growing Retail Deposits
A new deposit insurance fee calculation this year may push bank retail deposits even higher, one research firm predicted.
Retail deposits now make up 80% of total bank liabilities, according to data from Market Rates Insight. Competition could intensify when a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act that includes non-deposit liabilities in the base for calculating insurance fees goes into effect mid-year.
The new measure is expected to intensify the competition for retail deposit among institutions because those with a relatively large amount of non-deposits liabilities will see a significant increase in their insurance fees, and therefore will strive to acquire more liquidity through retail deposits, according to MRI.
Over the past four years, the proportion of deposits and total liabilities has steadily increased mostly due to decreasing retail rates, the firm noted. This trend is projected to accelerate in the future, in part, because of the switch in the way deposit insurance fees will be calculated. At the end of 2007, total liabilities of FDIC insured institutions were $11.7 trillion and of that, total deposits were $8.4 trillion. Non-deposit liabilities were $3.2 trillion or 28% of total liabilities. By the end of 2010, total liabilities stood at $11.8 trillion and the proportion of deposits increased to $9.4 trillion.
“Retail deposits are now more attractive than ever for institutions,” said Dan Geller, executive vice president at MRI. “On one hand, deposit rates are at a record low, which means low interest expense. “[On] the other hand, institutions can avoid large increases in insurance fees if their liabilities are made up mostly from retail deposits.”