We are now living through a highly unusual economic scenario.
Dubbed a K-shaped recovery by some, a severe economic downturn has arrived hand-in-hand with a sudden and significant inflow of consumer deposits.
The reasons behind this phenomenon are debatable. The broad-brush US approach to government stimulus/relief certainly plays a role, but no bank or credit union leaders saw this coming as PPP funding scenarios began to unfold. The result is a bizarre banking dynamic that’s a far cry from the challenges of recent years. Gone are the days of fighting to grow deposits by more than low single digits per annum. In 2020, it was not unusual for institutions to have registered checking balance growth of 15-25%. One client we’re aware of saw deposits grow unexpectedly by $1 billion.
From a bank or credit union’s perspective, a historic, pandemic-grade deposit influx may be the proverbial good problem to have, but it’s a problem nonetheless.