U.S. banks are dangling promotions to lock in customer deposits, analysts say (updated)

Happen

07/04/2023 17:00

(Updates with comments from Capital One)
    By Nupur Anand and Koh Gui Qing
       NEW YORK, April 6 (Reuters) - For months, consumers have
clamored for banks to pay out more for deposits as the Federal
Reserve raised interest rates. Now analysts say after the
banking crisis shook markets last month, lenders appear to be
rejigging offers in an effort to keep customers' cash parked in
their accounts for longer.
    U.S. banks are trying to woo depositors by offering signing
bonuses to open new accounts or deposit money on a regular
basis. The promotions are running at a time when the failures of
Silicon Valley Bank (SVB) and Signature Bank last month spooked
customers, prompting them to move $119 billion out of smaller
institutions.
    Capital One Financial Corp  COF.N  is advertising a $100
bonus for opening a new savings account and keeping more than
$10,000 in it for 90 days. The offer ramps up to a bonus of
$1,000 for deposits of over $100,000. 
    Discover Financial Services  DFS.N  and LendingClub  LC.N 
are offering similar perks, which were in effect before the bank
runs began. 
    A Capital One spokesperson said the campaign is part of
their longstanding strategy to help customers build balances in
their savings accounts, and had been planned for several months.
    Citizens Financial Group  CFG.N  is offering a $25 bonus for
customers who put in $100 a month for three months and
maintaining a minimum balance, according to emails sent to
customers after March 10. 
    The offer is part of a pre-planned campaign to promote
healthy savings habits, and not in reaction to specific events,
Citizens spokeswoman Eleni Garbis said in a statement.
    Discover did not immediately respond to requests for
comment.
    Paying more for deposits is an effective way for banks to
keep customers loyal, analysts said.
    "As rates have risen, high-yield savings accounts have
become fashionable once again, with some banks competing
aggressively to stay at the top of the rate tables that
consumers rely on for comparison purposes," said Andrew
Davidson, chief insights officer at Mintel, a market
intelligence agency.
    "The intense competition has been further fueled by an
overall drop in deposits, with more firms reaching out to
customer in the last few weeks," he added. 
    Banks are also trying to retain customers by employing other
techniques such as explaining to customers the rules around
deposit insurance, offering different products or emphasizing
ties to local communities.
    Smaller banks, which were most strained by the recent
crisis, have been able to stem the exodus of deposits for now,
according to weekly data from the Federal Reserve. But industry
experts continue to monitor the outflows closely.
    
    DEPOSIT OUTFLOW STABILIZING
    The Fed’s data showed smaller U.S. banks -- defined as any
lender that is not among the largest 25 U.S. banks ranked by
assets -- saw their deposits stabilize in the week of March 22,
down just $1.1 billion from the previous week on a
non-seasonally adjusted basis. 
    That compares with $185 billion of deposits that were yanked
out of smaller lenders by panicked customers during the week
ending March 15, after SVB collapsed. That said, the Fed’s data
showed deposits at smaller banks were still down some $216
billion during the week ending March 22 from a December high.
    The Independent Community Bankers of America, an industry
group, said some of its members had actually gained deposits in
recent weeks as consumers and small businesses sought out banks
with strong ties to their local markets.
    “Community banks have not reported widespread withdrawals in
response to the SVB failure," said Anne Balcer, senior executive
vice president, chief of government relations and public policy
at the ICBA. 
    "Main Street community banks are there for their customers
during uncertain times and have proven to be resilient through
economic cycles."
     Meanwhile, large U.S. banks lost out on $96.2 billion in
deposits in the week ending March 22, the Fed data showed.
Several analysts attributed to decline to depositors moving
their cash to higher-yielding money market funds. 
    Deposits at large banks dropped some $519 billion from as
high as $11.2 trillion in February last year.
    Banks act as middlemen in the economy by taking deposits and
making loans. So far, the decline in deposits hasn't stopped
them from extending credit to households and businesses.
    “Tighter funding conditions for banks have not translated
into any notable deceleration in aggregate U.S. banking sector
loan growth relative to February levels,” analysts at Moody’s
Investors Service said in a note.

 (Reporting by Nupur Anand and Koh Gui Qing, additional
reporting by Tatiana Bautzer in New York and Douglas Gillison in
Washington; Editing by Lananh Nguyen and Jan Harvey)
 ((Nupur.Anand@thomsonreuters.com; +1 646 240 2975;))