Recent Trends in Deposit and Loan Growth: Implications for Small and Large Banks

Bank deposit growth is declining. At the end of June 2000, deposits funded only two-thirds of bank assets, compared with 77% at the end of 1992. Core deposits (total deposits less time deposits larger than $100,000), the banks’ bread-and-butter source of funding, have declined at an even faster rate, from 62% of total bank assets in 1992 to 46% at the end of June 2000. Not only are banks losing a stable source of funding, but the composition of deposits and other liabilities is shifting toward more interest-sensitive instruments. Banks are relying more on deposits purchased through brokers, advances from the Federal Home Loan Bank System and volatile liabilities.