Deposit stability matters more than low-cost money now
Skinny deposit costs used to be the main fashion on banking's runway. But what's all the rage now is a stable deposit base. For some, that will mean paying up for money in the short term. Finding ways to make deposits and relationships stickier will be key in the long term.
Two lasting legacies of the bank-run crisis will be:
- Depositor inertia can no longer be taken for granted.
- The stability of a deposit portfolio will take precedence over the longtime emphasis on cheap deposits.
This shift will drive financial institutions to reexamine their business models and make adjustments in ways that influence their ability to raise and retain deposits, say Leo D’Acierno and Rohan Shah of the consulting firm Simon-Kucher & Partners.
The long-term impact will take time to sort out, but look for relationship banking to gain momentum, distribution models to get tweaked, and customer mix to get reviewed.
The shift can’t be pinned entirely on the crisis. It’s more of a one-two punch.
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