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Why Capital One’s deposit quality is excellent


Mar. 5 2015, Published 9:26 a.m. ET

Cost of deposits is high, but other parameters are good

Capital One’s (COF) cost of deposits is higher than its peers. This is primarily due to the branch network’s limited spread. Many of Capital One’s customers are also pure online customers. These customers are less likely to have low-cost deposits. However, in regards to deposit quality, there are other parameters where Capital One fares well.

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Deposit accounts’ average account balance is low

For deposits, a high average account balance indicates that the deposit spread isn’t high. If a good number of depositors pull out their money, it would lead to a mismatch in assets and liabilities. Capital One’s account balance is lower than the industry average. Only Wells Fargo (WFC) and PNC Bank (PNC) fare better than Capital One. It’s even better than U.S. Bank (USB).

Non-interest deposit exposure is rising

Since 2007, many depositors moved to interest bearing deposits. This was largely driven by consumers looking to get more return on their money. It’s also caused by the competition for gaining deposit market share. Capital One is the best performing bank in terms of holding on to non-interest bearing deposits. The change in non-interest deposits was only 4%—compared to 2007. In this respect, it has the best performance in the sector.

Overall deposit quality is high

It also has among the highest percentage of FDIC (Federal Deposit Insurance Corporation) insured deposits in the industry. This indicates that more deposits are held in accounts that meet FDIC insurance rules. This indicates good deposit quality. Consumer deposit exposure is also high at Capital One.

All of these factors make Capital One one of the best banks, in terms of deposit quality, in the Financial Select Sector SPDR (XLF). Capital One accounts for 1.46% of XLF.


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