U.S. Banks: What Goes Up, Must Come Down; Deposit Pricing Tailwinds Near
Banking OrganizationsSummary
This commentary reviews recent deposit trends across the U.S. banking industry.
-- The U.S. banking industry's deposit costs have increased since the start of the recent Federal Reserve interest rate hike cycle. However, this funding cost should start to stabilize going forward, in our view.
-- With deposit betas typically achieving a higher velocity when rates decrease, deposit repricing benefits should be felt relatively quickly. Nonetheless, deposit cost adjustments have typically lagged the first set of rate cuts.
"The industry's net interest income should benefit in the near term given the upcoming tailwinds from deposit cost stabilization, with further benefits likely ahead if the current consensus view that the Fed begins to cut rates by year-end materializes. We view the improving NII picture as supportive of our Stable view on the sector and can help offset higher provisioning levels if the Fed does not achieve the expected soft landing." Said Eric Chan, Vice President - Global FIG.
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