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In response to the banking industry’s recent influx of deposits, several recent bank acquisitions show how some banks are responding to the pressure of putting liquidity to work.

Midsize banks like Truist Financial, Fifth Third Bancorp, Regions Financial, and some community banks have announced acquisitions where they plan to hold onto loans that the sellers would typically roll off the balance sheet.

Their objective? To redeploy billions of dollars in deposits held by the acquirers, shore up net interest margins, and boost returns.

Bankers may need little convincing to see that we’re dealing with highly unusual market conditions, but the data certainly helps put the situation into perspective.

In 2020, the number of new checking households dropped by half compared to a typical year of account openings, however the average checking account balance grew by an astonishing $1,833. Indeed, many experienced a meaningful increase in liquidity, though not all higher checking balances reflect greater wealth. There have been unusually high shifts of expiring CD balances to more liquid savings vehicles, as well as an influx of government economic relief funds. On the other hand, fewer are opening new accounts. This could have dire consequences for individual institutions if it becomes a long-term trend since household growth is the lifeblood of community financial institutions (FIs).