Year-over-year Decline in Bank Deposits: A Historic Drop in U.S. Banking Sector

Discover the first year-over-year decline in U.S. bank deposits in 29 years. Learn about the factors leading to this historic drop and its impact on the banking sector.

According to a recent report from S&P Global Market Intelligence, U.S. bank deposits experienced a significant decline during the 12-month period ending on June 30. This is the first time such a drop has occurred since 1994, when the Federal Deposit Insurance Corporation (FDIC) began collecting data on bank deposits. The report indicates that deposits fell by 4.8% year over year, amounting to a total of $17.269 trillion. The decline was attributed to bank runs that led to three major bank failures in the first half of 2023.

Notably, the report found that nearly one-third of the overall drop came from the four largest banks: JPMorgan Chase, Bank of America, Wells Fargo, and Citi. JPMorgan Chase, despite experiencing a 2.8% decrease in deposits, remains the country's largest deposit holder for the third consecutive year. This decline occurred even after the acquisition of First Republic Bank, which contributed to deposit inflow. Bank of America, which held the top spot in deposits in 2020, saw a 5% decrease in deposits, amounting to $1.888 trillion. The bank's market share also dropped by 3 basis points to 10.93%. Wells Fargo and Citi experienced deposit decreases of 6% and 0.8% respectively.

On the other hand, BMO saw the largest gain in deposits, marking a 51.7% increase over the year. This jump can be attributed to the bank's acquisition of Bank of the West for $16.3 billion in February, bringing its total deposits to $202.24 billion. The overall decrease in deposits reflects the turmoil in the banking sector, which can be attributed to rising interest rates, inflationary pressures, and a decline in consumer confidence.

The FDIC emphasizes that the banking system remains well capitalized. Nevertheless, the first drop in deposits in nearly three decades highlights the mounting stress faced by financial institutions. This stress is expected to continue as regulatory bodies such as the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency propose capital requirements that would necessitate the largest U.S. banks to hold an average of 19% more.

In addition to the deposit decline, the report also revealed a decrease in the number of bank branches. Over the 12-month period, the branch count decreased from 79,172 to 77,796 as banks continued to consolidate locations in an effort to reduce costs and adapt to the evolving digital landscape.

This significant drop in U.S. bank deposits signifies the challenges and uncertainties faced by the banking sector. As economic factors continue to unfold, it remains crucial for financial institutions to adapt and find ways to navigate these unprecedented times.