June 12 data from the Fed
According to the latest Federal Reserve data released on June 12, total deposits at all US commercial banks in the week ending June 5 increased by 5.4% YoY (year-over-year). Deposits grew by 5.6% YoY in the previous week. Total deposits account for 85% of US banks’ funding.
As the above graph shows, there’s a slight downward trend in the weekly YoY growth in deposits at all US commercial banks.
Low-rate environment contributes to growth
The sustained low-rate environment since the crisis has resulted in limited investment options for individuals and institutions. It makes holding liquidity as deposits a relatively inexpensive option. This has driven exceptional deposit growth at banks.
When rates are at an all-time low, investors put money in non-interest-bearing deposits. Investors can withdraw these funds anytime. This gives them the flexibility to withdraw money as soon as they find an attractive investment option.
Will expectations of a rate hike impact deposit growth?
With an interest rate hike very likely in 2015, the deposit growth rate seems to be stabilizing. Banks are also becoming more selective about taking deposits because it’s increasing their interest burden.
Together, these two banks form ~11% of the Financial Select Sector SPDR Fund (XLF). Deposits are the key source of funds for all big banks, including PNC Financial (PNC) and Capital One Financial (COF).