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As Rates Fall, Back Books Will Block Expense Relief

Banks are granting rate exceptions to their commercial clients of 500 bp or more, so it can be easy to overlook that most banks’ portfolios still contain a significant back book. According to the latest Curinos data, 46% of interest-bearing (IB) DDA balances and 24% of money market demand account (MMDA) balances industry-wide were under 300 bp (see chart). 

These back books present headwinds for banks seeking to meet pass-through targets for falling-rate betas. Bringing down rates on their balances would create a heightened risk of customer attrition, and the replacement cost of acquiring new balances would be significantly higher. Meanwhile, these back-book balances might still “wake up” on their own and demand even better pricing. And non-interest-bearing balances continue to flow at a modest rate into IB, putting further pressure on net interest margin and betas. 

What can be done? Developing a deeper understanding of elasticity and primacy via analytics can inform more surgical pricing decisions. We also suggest taking a hard look at treasury management pricing to see the extent to which the migration of ECRs to interest-bearing can be slowed down.  

Rate Band Distribution By Product​ ​

Significant back-book balances will present headwinds to banks’ pass-through targets for falling-rate betas. ​ ​
Commercial Analyzer
Source(s): Curinos Commercial Analyzer. Data as of January 2024​

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