SAN FRANCISCO–During the first quarter of 2020, net interest margin (NIM) dropped 29 bps for banks and 21 basis points at credit unions, according to data from their respective regulators and reviewed by Analyticom, a behavioral economics research firm.
As of Q1 2020, banks are operating with an average NIM of 3.13%, and credit unions with an average NIM of 2.95%, the company said.
“This drastic decline in NIM is largely attributed to lack of rate optimization of deposits relative to the economic environment. Case in point - in Q1 of this year, customers and members deposited five times the amount they normally do due to their rising money anxiety caused by the economic uncertainty,” according to the analysis.
As CUToday.info reported earlier, that $1.2 trillion influx is being referred to as "Mattress Money” and has a different rate elasticity factor than regular savings, according to Dr. Dan Geller, who heads up Analyticom and who has developed the Money Anxiety Theory.
Forgoing Higher Interest
That theory, developed during the 2008/2009 financial crisis, states that during economic uncertainty, when the level of money anxiety increases and as a result people reduce their spending and increase their savings, consumers are most likely to put deposits into liquid accounts.
Geller noted a study he coauthored with Dr. Nahum Biger found consumers are willing to forgo five times higher interest rates on their deposits in return for immediate access to their money.