We should recognize that it is not just the online banks that are ratcheting up deposit interest rates - many community banks are too. They just aren't doing it as much locally. We must recognize that brokered deposits are priced at levels comparable to online offerings. These brokered deposits are in reality the offerings of hundreds of community banks across the country. While the community bank may not be posting those rates locally, what goes around comes around. Outsourcing significant portions of the funding of a bank balance sheet should not be considered casually.
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Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
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Original Message:
Sent: 08-14-2018 09:18
From: Barb Rehm
Subject: Tuesday Topic: Feeling the (Deposit) Pressure
With every Federal Reserve rate hike, a bigger portion of the increase is going to consumers, The Wall Street Journal reported Monday. In the second quarter, the deposit beta, or the portion of a rate increase that is translated into deposit costs, jumped to 44% from 28% in the first quarter, according to Keefe, Bruyette & Woods. As every banker knows, online banks are leading the way up. Overall deposit costs for online banks reached 1.29% in the second quarter of 2018, up from 1.11% in the first quarter, according to estimates by Credit Suisse. By comparison, deposit costs for all banks nationwide were 0.64%, up from 0.53% the prior quarter. Credit Suisse looked at a sample of 16 banks taking deposits online, including Goldman Sachs as well as credit-card companies like American Express, auto lenders like Ally Financial, and brokerages like Charles Schwab, and found these online banks' market share has risen to around 6% of total interest-bearing deposits, from 4% in 2015. WSJ concluded: "There is plenty of room for that to rise further. Pressure on traditional lenders to pay more for deposits will keep rising."
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Barb Rehm
Senior Managing Director
Promontory Interfinancial Network
Arlington VA
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