A.M. Best Special Report: Different Bank Deposits Reacted Distinctly to Economic Crisis

OLDWICK, N.J.–(BUSINESS WIRE)– The U.S. banking industry has seen an 8% year-on-year surge in deposits, based on recent federal data, despite sharply lower rates offered by banks on all types of deposits. But U.S. bank deposits took some unexpected turns over the past three years amid turbulent financial markets and numerous actions by the U.S. Treasury and banking regulators in response to the financial crisis. Individual components of total deposits respond to various factors in distinct and sometimes surprising ways.

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• Core deposits are more resistant to pressures from the financial crisis, while noncore deposits were reduced because of low interest rates as well as systemic risk.
• The failure of some large banks during the second phase of the financial crisis may have introduced greater volatility in growth of bank deposits.
• Small banks experienced a more adverse impact from the crisis on their deposit base than large banks, possibly reflecting a public perception that the large banks were “too big to fail.”
• Failures of both high profile and local banks have a greater effect on bank deposits than economic conditions.
• Regulatory and governmental intervention, particularly the Federal Deposit Insurance Corporation’s increased limits on insured deposits, have aided greatly in restoring consumers’ confidence in bank deposits.
• The long-term trend of growth in bank deposits is underpinned by fundamental drivers such as significantly higher consumer savings rates, as well as those savers’ preference for the safety of bank deposits compared with other savings and investment alternatives.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best
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Khanh Vuong, 908-439-2200, ext. 5633
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Rachelle Morrow, 908-439-2200, ext. 5378
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Jim Peavy, 908-439-2200, ext. 5644
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Source: A.M. Best Company