What Is Your Deposit Study Missing?

As interest rates rise, deposit costs lag and mixes change. It’s a concept that bankers are schooled in early in their careers – and they re-learned this lesson during the 2022-2023 tightening cycle. But this time it was a bit extreme.

According to Darling Consulting Group’s Deposits360°® analytics, interest bearing non-maturity deposit costs rose 108 bps as the Fed actively tightened from March 2022 through July 2023. However, they went up another 43 bps in the 12-months following the last Fed hike. Additionally, NMDs fell from 86% of total deposits to 73% of total deposits from March 2022 through July 2024.

This affected interest rate risk (IRR) reporting as positions changed rapidly. What was once asset-sensitive turned liability-sensitive. Confidence in ALCO diminished. And therefore, the ability to make confident, risk-prudent decisions from the ALCO report also diminished.

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What Is Your Deposit Study Missing?

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