For someone spending a hefty percentage of their waking hours focused on deposits pricing, talking about the interest rate environment has felt a bit like the ‘boy crying wolf’ over the past few years. Let’s face it: rising rates have been ‘coming’ for the better part of a decade at this point.
It’s safe to say that we’ve arrived, even if the fireworks haven’t begun yet. The Fed strung together two increases over the first half of the year, with the market currently setting the odds of another increase in December around 65%. While more aggressive players have already begun their upward march, recent movements by a growing number of institutions (and even a few of the Top 5) signal a broader recognition that deposit pricing increases are, in fact, taking hold.
One of the dashboards we keep our eye on at Nomis is what I refer to as the ‘velocity chart’ – a measure of both the breadth and depth of deposit rate increases taking place in the months following an increase in the Fed Funds target rate. I’ve included our view of Savings and Money Market pricing changes here (as of September 22nd), showing both the number (%) of banks that increased promotional or base rates in the periods immediately following the past 3 rate increases, as well as the average increase amount, broken down by institution type.
I find this chart an instructive way to quickly get a sense of pricing trends at a national level; and it clearly shows the upward trajectory indeposit pricing actions through 2017. While Direct and Super-Regional banks have clearly led the charge, they’ve done so leveraging materially different techniques, with Super-Regionals opting for strong, periodic promotional offers vs. the consistent, but smaller increases common for Direct Bank rates. With increasing activity for Regional banks, and even pricing for the Top 5 starting to tick upward, attention to market competitiveness seems to have taken hold of banks across the spectrum.
Evidence that this matters to consumers, however, has not yet materialized. At this point, promotional pricing efforts appear to have largely resulted in banks trading their most rate sensitive customers back and forth, with most not yet actively shopping for rate. Until materially more deposit balances become ‘in play’, this sort of activity is likely just exacerbating the increase in cost of balance acquisition.
As we move forward, the key question is when we'll see broader recognition of interest rates via shifting balance trends. In my next post, I'll plan to discuss a few more tactics I feel are effective in monitoring your portfolio for these types of shifts in customer behavior.