CHARLOTTESVILLE, Va. Banks have taken the opportunity over the last few years to improve the makeup and cost of their deposit bases before the interest rate environment turns and institutions once again place higher values on the attractive source of funding, according to new analysis from SNL Financial.
The sustained period of historically low interest rates has left banks flush with deposits that stand well in excess of loan balances as loan growth has remained challenged. SNL Financial said banks have capitalized on such an environment to improve the mix and cost of their deposit bases, but the trend showed signs of slowing in the second quarter as long-term interest rates began creeping up from historical lows.
The yield on the 10-year Treasury increased 65 basis points during the second quarter, increasing to 2.52% from 1.87% at the end of the first quarter. Still, SNL noted, interest rates remain well below historical norms and banks continued to report a much higher level of low-cost deposits on their balance sheets than witnessed prior to the credit crisis. Through the end of the second quarter, money market accounts had grown to 46.7% of domestic commercial and savings banks’ deposits, up from 46.0% in the first quarter and 39.2% in 2007.
