Big banks are deposit vacuums: How other institutions can slow the flow

That 'giant sucking sound' is Millennial deposits flowing into the largest banks, who are reaping more than 80% of 2020's record-breaking haul, new data confirms. Community banks and credit unions must strengthen connections with younger consumers now. Here are several ways they can do that.

The lopsided distribution of new deposits among various financial institutions during COVID 2020 is almost as jaw-dropping as the size of the deposit inflows since the start of the pandemic. First-half deposit growth was a record-shattering $2.4 trillion, five times the size of the first two quarters of the Great Recession. Even in the third quarter, deposit growth still continued, albeit at a much slower pace.

According to FDIC data, $2 trillion (83%) of the $2.4 trillion in new deposits went to just 13 banks over $250 billion in assets. The preponderance went to three institutions: Chase, Bank of America and Wells Fargo. Collectively, banks below $1 billion in assets actually saw their deposits decline. A similar pattern was seen with credit unions, per NCUA data, according to a new deposit study by Raddon Research.

This deposit imbalance is a portent of trouble to come for community and even midsize institutions in the not-too-distant future, according to Andrew Vahrenkamp, Senior Research Analyst and Program Manager at Raddon Research.


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