NEW YORK–As CUToday.info has reported, in the wake of the failure of two banks, small and midsize U.S. banks lost hundreds of billions of dollars in recent weeks as funds flowed to larger banks and money market funds with higher yields. Now many of those smaller institutions—a relative term when CUs and banks are compared—are being forced to raise interest rates in order to stem the outflows, according to one new analysis.
The extent of the damage will become clearer when dozens of regional banks, including M&T Bank Corp., U.S. Bancorp and Citizens Financial Group Inc. begin to report first-quarter results, according to the Wall Street Journal.
“It’s maybe the most critical, sensitive quarter they’re ever going to report in,” Mike Brauneis, managing director and global financial services industry leader at Protiviti, a management-consulting firm, told the Journal.
‘Jacking Up Rates’
The report noted that some banks are already “jacking up the interest rates” they pay savers, with the biggest increases coming from banks with a high percentage of deposits that exceed the FDIC’s $250,000 insurance cap or whose customers are concentrated in a few industries. The Journal pointed out, for example, that Los Angeles-based PacWest Bancorp, a lender with a lot of startup customers, had offered as much as 5.5% for a shorter-term CD in recent weeks. A CD offered by Merchants Bank of Indiana has an introductory yield of about 5.4% that can move higher if the Federal Reserve’s benchmark rate does.
Some banks appear to be trying to “get ahead of any potential situation” and “make sure they have the liquidity if difficulty should arise,” Ken Tumin, founder and editor of DepositAccounts.com, told the Journal. “Things have started to change over the past month.”
According to data cited by the Journal, the average rate paid on deposits at banks and credit unions was 0.37% in March, compared with 0.06% a year earlier.
Moving Faster
“But rates have moved faster on deposit accounts designed to keep money parked for longer periods,” the report added. “The average yield for online savings accounts rose to about 3.75% in March, according to indexes from Deposits Online LLC, compared with 0.5% a year ago. Online one-year certificates of deposits on average offered an annual percentage yield of nearly 4.75%, up from less than 1% in 2022.
Even America’s biggest banks are paying more to keep customers from taking their business elsewhere. Citigroup Inc. paid 2.72% on interest-bearing deposits in the first quarter, up from 2.1% at the end of 2022. JPMorgan Chase & Co. paid 1.85%, up from 1.37%, while Wells Fargo & Co. paid 1.22%, up from 0.70%.”
Feeling the FOMO Fever? CUToday.info Has a Prescription
Are you missing out on the latest news in credit unions? Missing the trends and developments you need to be aware of? We can help. Each morning CUToday.info delivers its daily Fresh Today news update offering the latest headlines and breaking news right to your email, with the easy-to-read headlines format allowing you to click on the stories that interest you most in order to learn more.
And it’s free!
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties, and we will not be contacting you to sell you an extended warranty or sending you any links so you may cash in on an inheritance you didn’t know was coming.
And did we mention it’s free?
Please note and/or make your IT department or email administrator aware the emails will be coming from the domains CUTodayinfo.com and CUTodayinfoReply.com