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Commercial: Falling Rates Won’t Stop Deposit Flow To IB

Migration from non-interest-bearing (NIB) commercial deposits to interest-bearing (IB) continues. It’s no mystery: The market rate for IB is about 400 bp, nearly five times what NIB deposits earn. By the end of this year, Curinos expects that some additional transfers will take place and NIB balances may be only a quarter of total commercial deposits, down from almost half in early 2022.

This migration might have been even faster if not for institutional inertia. In 2007, during the last period of comparably high rates, banks couldn’t charge interest on commercial deposits, so they charged fees for treasury services instead. Today’s spreads between ECRs and market rates are too wide for a growing number of corporates to pass up.

Curinos believes the move to IB will continue even after rates start falling because of simple math: Making 300 bp (or even 200) is better than making the current rate of 84 bp. With fewer NIB balances contributing to spread revenue, banks will need to continue to focus on driving treasury-management fee income through an emphasis on winning primary relationships and pricing appropriately for payments services.

Non-Interest-Bearing Deposits As % Of Total

NIB could shrink to just 25% of all commercial deposits by year end, and the trend could continue even with falling rates.

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