A long-awaited turnaround in funding costs arrived in the third quarter, but questions remain about how much relief U.S. banks can expect in the coming months.
Overall increases in funding costs had been tapering since the Federal Reserve shifted from raising rates to taking a wait-and-see approach near the end of 2018. Now, with three rate cuts — the first two of them were in the third quarter — and drops in longer-term rates over fears about the economic outlook, funding costs appear to have entered a descent.
“There’s really only one way for [overall deposit costs] to go down materially faster, which is if we see further decreases in” rates offered to new customers, said Peter Gilchrist, executive vice president at bank analytics and advisory company Novantas.
Data on a pool of about $2 trillion of retail deposits that Novantas tracks has shown that savings account acquisition rates have fallen sharply so far: by about 25 basis points for the 50 basis points in cumulative Fed cuts in July and September.
But “the biggest factor that’s going to drive acquisition rates down [further] is if the industry doesn’t have an appetite for outside deposit growth,” Gilchrist said, which would require a broadly undesirable softening in macroeconomic conditions