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Commercial Deposits Surge, But Which Ones Are Sticky?

Commercial deposits have increased significantly since early March, with many banks reporting balance growth in excess of 20% in the first quarter alone. This far exceeds annual growth rates, including 7% in the fourth quarter of 2019, and has certainly been helpful in funding similar increases in commercial and business lending.

Yet, some of these new deposit balances likely won’t be sticking around for long as companies burn through them to cover near-term operating losses. Others may be stickier because companies want to hold more reserve cash in uncertain economic times.

It will be critical for banks to identify which deposits represent core funding and which are transitory. To do so, bank­ers must use advanced behavioral analytics and other techniques to drill down into the expected behaviors of these corporate customers.


The largest U.S. banks have seen big inflows of commercial deposits, with the “Big Four” growing balances 22% in the first quarter, representing an annualized rate of 88%! (See Figure.)

These trends continued well into April, with average balances growing at annualized rates in excess of 50%, according to proprietary data from the Novantas Comparative Deposit Analytics (CDA) platform.

Regional banks are also reporting surges in commercial deposits, with most seeing an increase of 8-20% in commercial balances from early March through mid-April.
Not all banks have seen such rapid growth, however. Several large regional banks reported flat growth in their first-quarter earnings, and proprietary data from Novantas shows similar flat growth for select smaller regional banks.


Note: Based on Q1 public earnings releases for Commercial and Corporate Lines of Business; Wells Fargo’s lower growth driven by planned reductions in deposits from financial institution clients and heavily influenced by its asset cap
Source: Bank public earnings releases for 1Q; unaudited earnings statements/regulatory filings


The COVID-19 pandemic has changed how companies manage their liquidity, catapulting access to liquidity as the number-one objective. Most companies have seen, or expect, significant revenue and profit downturns. The need to secure cash to fund operations and pay employees is of paramount importance, especially when the cost of that added liquidity is low.

To achieve this, many companies drew down their short-term credit facilities and placed those funds in deposits. This drove a significant portion of the early deposit surge. In March alone, commercial lending grew approximately 1.5 times the normal annual growth rate, according to data from the Federal Reserve.

Companies distributed the cash from those drawdowns in new ways. In normal times, companies would take the drawdown from their primary operating banks and then deposit those funds in an operating account at that same bank. Now, however, they have drawn down funds from one of their primary operating banks and then often moved a portion of those funds to a different bank — creating a firewall for those funds in case the lending bank called the loan.

Some companies even opened new accounts at different banks to segregate the funds. Some banks are reporting that 35-40% of funds drawn from credit lines stayed with the bank as deposits, while others captured closer to 80% of these funds. Of course, an individual bank’s deposits were influenced by draws on their own lines as well as lines at other banks, so the total impact was distributed around 100% initially.

This change in behavior underscores the top priority for commercial customers right now: preserving access to liquidity because they are concerned about future needs and access to funds.

Two other factors drove commercial-deposit volume growth, contributing to the early surge in commercial deposits for primary operating banks.

First, companies are concentrating non-operating deposits (those held in reserve, likely in an interest-bearing deposit held with a secondary bank relationship) at their primary operating banks to ensure easy access to cash to fund operations in a time of stress. Novantas refers to this behavior as “flight to proximity.”

In addition, companies are holding onto cash that may otherwise have been invested in the business, such as delaying the purchase of new equipment or the opening of a new location.

The Federal relief programs for businesses, local governments and hospitals are continuing to drive the surge in commercial deposits in the first weeks of the second quarter — a trend that is likely to persist. So far, these programs are set to drive $899 billion of deposits into banks through increased lending and stimulus activity, representing an additional increase of nearly 25% in total commercial deposits.


These programs are part of the CARES Act and include $649 billon in the first two rounds of small-business relief through the Paycheck Protection Program, $150 billion in state, local and tribal government relief and $100 billion in healthcare relief.

It is possible that the Main Street Lending Program for small and medium-sized businesses could also drive deposits, though Novantas expects this program to more closely mimic typical commercial-loan dynamics in which the cash is used for explicit purposes rather than liquidity backstops.


Surge deposits often look alike in ultra-low rate environments, especially in regulatory reporting. But these deposits have very different values. Primary banks typically attract more core deposit balances, and that is true for the current surge in deposits. Investors want to see more long term, core commercial deposits and bank analysts want to know that these new deposits are “real” or if they are likely to flee the bank quickly.

Banks know that customers will deploy these deposits at different rates. Some, for example, will hold them in reserve in case they are needed quickly in the future. The key issue for banks, then, is to identify which deposits will burn off — and how quickly.

To analyze this issue at the company level, bankers need to predict the company’s future business prospects, assess its likely burn rate and recovery profile and forecast how its deposits will shift over time.

That may seem challenging, but in actuality it’s the easy part.


Knowing how a company’s overall deposits will change is helpful, but even more important is understanding how its deposits at your institution are likely to change over time. This is critical to valuing the deposits. To do so, bankers can run through a checklist for each commercial client. (See sidebar.)

Banks typically have intuitive views on these questions and data points that can be pieced together to build a reasonably complete picture of corporate customers. Increasingly, banks can explore novel applications of AI and scoring to help them profile customers along these dimensions by using advanced scoring techniques.

Banks are experiencing a surge in commercial deposits that, on the surface, looks positive relative to the steep increase in commercial lending. These surges, however, underscore the need for enhanced, customer-level analytics that can help value these deposits appropriately and determine which deposits are core and which are fast-burning.

Stay up-to-date on the latest banking trends

For more information, contact Novantas Marketing

+1 (212) 953-4444

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