Bank Loans Increasing while Deposits are Decreasing

Stimulus and higher savings rates during the covid lockdowns contributed to a 22% increase in bank deposits in 2020, significantly decreasing banks’ cost of funds. However, deposits began declining in the second half of 2022, ending the year down 2% from their peak in May 2022.  Concurrently, loans and leases by banks increased 7%. 

Bank cost of funds will also be marginally impacted by the FDIC’s decision to raise deposit insurance assessment rates for banks by two basis points starting in 2023.  The FDIC raised rates because the increase in deposits drove the Deposit Insurance Fund reserve ratio below the statutory minimum of 1.35%.