Darling Consulting Group Observes Unprecedented Surge in Bank Deposits Due to COVID-19

Consumer Spending Grinds to a Halt and Small Businesses Park PPP Loan Proceeds

NEWBURYPORT, Mass.--()--Darling Consulting Group (DCG), a highly regarded national leader in bank balance sheet risk management, model risk management, and deposit analytics, has observed a significant spike in bank deposits since the onset of COVID-19. Utilizing DCG’s proprietary Deposits360°® cross-institution dataset from hundreds of its client banks throughout the country, DCG saw an industry-wide increase of almost 10% in deposit balances during the month of April alone. This 10% equates to a 25 fold increase compared to typical monthly growth of 0.40%. Recent datasets are reflecting that May deposit levels continued to increase notably as well. Matt Pieniazek, President of Massachusetts-based Darling Consulting Group (DCG) said, “Our data confirms what many are already thinking, but won’t know for sure until public data is available in August, that there is a very real COVID deposit surge throughout the banking industry.” At the same time, according to the Bureau of Economic Analysis, consumer spending declined 13.6% in April. He added that “while liquidity levels have also elevated notably, the reasons for the unusual increase in deposits/liquidity are accompanied by a variety of uncertainties that raise important questions about the dependability of these elevated levels.” He further noted that “this has potential significant implications for a bank’s lending appetite, as well as loan pricing strategy.”

These trends are clear in both personal and business account levels, said Pieniazek. “According to the Deposits360°® analytics, smaller balance deposit accounts (e.g. <$5,000) have seen an extra $225 deposited on average compared with normal time periods.” These customers make up the majority of accounts for most community banks and credit unions, and this April increase represented an average 20% increase on the average balance of $1,100. The extra savings were likely triggered by stimulus checks and expenditure reductions. COVID-related fears and uncertainties are impacting consumer sentiment and accelerating the shift from consumption to savings.

Also noticeable for many institutions is the spike in business checking account balances. With over half a trillion dollars of Paycheck Protection Program (PPP) loans approved and largely funded, the majority of those funds were initially parked in checking accounts at the issuing banks. “Total checking account balances surged by more than 25%, with PPP loans that were originated and deposited into checking accounts being the primary driver,” said Pieniazek. Recent data and client conversations suggest that the vast majority of this increase has remained through the month of May. “The majority of the PPP loans have been self-funding, at least until the borrowers draw the deposits down and use the funds for payroll and other qualifying business expenses.”

Observations from Deposits360°® Analytics:

- 25% increase in total bank and credit union checking balances in April
- 10% increase in total bank and credit union deposit balances in April
- Deposit offering rates down 75 basis points since COVID (February – April)

The Deposits360°® cross-institution dataset includes customer-level data spanning two decades of rate cycles from over 200 institutions with 2 billion individual deposit records from 4,700 branches covering 48 states.

About Darling Consulting Group:

For nearly 40 years, Darling Consulting Group (DCG) has been the recognized leader in providing balance sheet risk management analyses, strategies, and solutions to the U.S. banking industry. Our 600+ active clients include a broad array of community banks and credit unions, as well as many of the country’s 100 largest banks.

Contacts

Darling Consulting Group
Justin Bakst
jbakst@darlingconsulting.com
(978) 463-0400

Contacts

Darling Consulting Group
Justin Bakst
jbakst@darlingconsulting.com
(978) 463-0400