Banks Unsure How to Handle Overflow in Deposits

Banks have been able to acquire deposits at a record rate in the first half of 2020 and now they find themselves unsure how to handle the capital with loan demand lower; “Deposit growth continues to outpace loan growth by a very wide margin, which will surely be a factor in NIM compression as banks appear to be awash in liquidity,” said Scott Siefers, an Analyst at Piper Sandler, to American Banker; with interest rates being so low and the PPP loans being capped at 1 percent banks could find themselves hurting on margins; “Banks will look at letting any higher-cost deposits they have run off, even if it means losing some small relationships,” Kevin Jacques, a former bank regulator who is the finance chair at Baldwin Wallace University in Ohio, said to American Banker. “I don’t think that, with all the uncertainty on credit quality, they’re going to go out and take a bunch of risk just to show loan growth. Not until people really know this pandemic is solved.” American Banker.

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