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• W166551472 abstract "As the commercial banking industry aggressively participates in the accelerating loan demand, the availability and cost of traditional deposit-funding sources are uncertain. Commercial-bank lending opportunities (including residential mortgage, consumer, credit card, and business) have expanded in a generally typical and predictable manner when viewed against the level of interest rates and the rising business cycle. Loans and leases at all commercial banking institutions, as depicted in Table 1, were flat in 1991 and 1992, but they rose 3.5% in 1993 and a robust 7.5% in 1994. As commercial banks attempt to maintain earnings growth momentum throughout the various phases of the business cycle, expanded loan volumes are important contributors in a 1994-1995 type of economic environment. In the past, many banks could partially fund that incremental or marginal loan growth by increased core deposits available at costs below the rates of Fed funds or large CDs. Accordingly, earnings would benefit from higher volumes, and the lower core deposit costs could help protect the net interest margin. The importance of those core deposits is even further magnified in a relatively flat yield-curve environment such as currently exists. In the fourth quarter of 1994, total commercial bank deposits had remained essentially flat from 1992, and thus, as a result of the rising loan volume, the aggregate loan/deposit ratio had risen to 92.9% from 84.3%. Declining market interest rates and abundant commercial bank liquidity in the 1990-1993 period were accompanied by a substantial reduction in deposit rates. By December 1993, the industry-wide average deposit rates were: NOW ACCOUNTS 1.86% SAVINGS DEPOSITS 2.46% 180-DAY CDs 2.91% Market reactions to these deposit rates are portrayed in Table 2. Large time deposits outstanding declined 27% from 1989 to 1993. Other deposits (which combine savings and small time deposits), while remaining generally steady at 54% of total deposits, were basically unchanged from 1991 to 1994, but the relative composition had changed significantly. Of particular importance to commercial banks' funding costs and earnings momentum in 1995 are the deposit cost and growth potential of savings deposits and interest-bearing checkable accounts. Annual deposit growth rates are shown in Table 3, wherein the savings deposit and interest-bearing checkable deposit patterns differ markedly from those of the small or large CDs. Shown below is the substantial shift in individual deposit categories as a percentage of total deposits for the fourth quarters of 1990 and 1994: 1990 1994 DEMAND DEPOSITS 13.0% 16.4% INTEREST-BEARING CHECKABLE 13.8% 17.3% SAVINGS DEPOSITS 27.1% 32.5% SMALL TIME DEPOSITS 27.9% 21.2% LARGE TIME DEPOSITS 18.2% 12.6% Both small and large CDs recorded 1994 growth rates of 5.2% and 5.9% respectively. To attract these deposits, large 90-day CD rates in the 1994 fourth quarter reached 6.25%, a significant change from the 3.26% prevailing in December 1993. Similarly, by February 1995, small six-month CD rates had attained 5.6%, while maturities of two-and-a-half years were 6.5%. In rather stark contrast, NOW account rates in February 1995 at 2.01% were very little changed from December 1993's 1.86%, while average savings rates of 3.09% were up modestly from 2.46% over the same period. Accordingly, in 1994, savings deposits fell 2.9% while interest-bearing checkable accounts dropped 1.9%. Furthermore, in the 1995 first quarter, these two deposit categories experienced additional reductions, with savings deposits 7.3% below the corresponding year-earlier period. In the 1994-1995 interest- and deposit-rate environment, some reversal or unwinding of the 1991-1992 double-digit gains in savings and other checkable deposits should be expected. …" @default.
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• W166551472 date "1995-06-01" @default.
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• W166551472 title "Do Deposit Patterns Pose a Funding Problem" @default.
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