LAS VEGAS - Mid-sized United States lenders are getting creative as they try to hang onto customer deposits after two bank failures rattled consumers and spurred a US$119 billion (S$158 billion) exodus from small institutions in recent weeks.
Industry executives discussed strategies to bolster trust in their institutions at an annual meeting of the Consumer Bankers Association conference on Monday in Las Vegas.
Paying higher rates on deposits is the most common way to make them stick, executives said.
The difference between banks’ promotional rates for new customers and average rates across the industry reached a record high in 2023 as lenders competed for client deposits, according to Curinos, a bank data provider.
The differential more than doubled between 2018 and 2023, from 1.4 to 3 percentage points.
Although high rates can attract deposits in the short term, other strategies may be more effective in the long term, said Mr Adam Stockton, a director at Curinos.
For instance, customers who had greater trust in their credit unions and older small banks stayed put while others rushed to move their funds, he said.
“Trust does not necessarily come from the size of a bank, but more from its profitability and relationships with the community,” said Ms Angela Conti, general manager for deposits and retail payments at USAA Federal Savings Bank.
Other techniques to retain deposits include explaining to customers the rules around deposit insurance, offering different products or emphasising ties to local communities, the executives said.
“Many customers don’t know that the FDIC insures US$250,000 per depositor, so if you have a joint account with your spouse or different accounts with other members of the family you can have larger amounts insured,” said Mr Chris Powell, head of deposits at Citizens Bank.
Bankers have recommended adding household members to accounts to get the maximum insurance available, he added.
Mid-sized banks are also offering products to businesses called bank insured cash sweeps, which allow a bank to distribute a company’s deposits among peer banks to insure a larger portion of its cash flow.
“Companies have been more interested in that after seeing the aftermath of the Silicon Valley Bank collapse,” Mr Stockton said.
After the collapse of Silicon Valley Bank earlier in March, some start-ups had to delay their payroll because money was stuck in the lender, which was seized by the authorities after customers rushed to pull their money out.
Despite the recent flight in deposits to large banks, one banker at a mid-sized bank said they were confident the lender could survive the recent exodus.
“We don’t think the current outflows will kill us,” said the banker, who declined to be identified because of not being authorised to speak publicly. REUTERS
