As commercial deposits shift away from DDA, the loss of deposit administration fees (DAF) is a key impact. DAF are the largest single charge in treasury management, totaling more than 15% of fees at most TM banks.
DAF propped up growth at many banks during the pandemic as ECR DDA balances swelled, but rising interest rates led to a DAF decline of 21% in 2022 and another 18% last year (see chart). These reductions shrank total fee growth by 2-3%, and in a higher-for-longer rate environment, the pressures will persist.
To recover lost ground, commercial banks need to find opportunities to raise DAF levels including increasing the list rate and reducing discounts and waivers. Leading banks are able to all but eliminate DAF discounts and waivers through strong governance
Another option is to extend the charge base from DDA to MMDA, which would also provide a hedge against further remixing. Curinos Commercial Analyzer, however, shows that fewer than a third of banks have already extended to MMDA or plan to. We believe this reflects the level of caution most banks are taking, perhaps rightly so, in being more aggressive toward their deposit gathering in today’s competitive market.
YoY Gross TM Growth 4Q21 to 4Q23, Total Fees vs. DAF
