This Month In Commercial Banking
Treasury management (TM) fee income grew modestly in 2022 with the average bank ending the year up 3%. Fee revenue increases were driven by a combination of higher prices, especially on paper-intensive and exception-processing services, as well as higher volumes in deposit services, disbursements and information reporting.
The year ended on a more challenging note, however, with average fourth quarter TM fee income down by -1% relative to the third quarter. (See Figure 1.) This was driven by a sharp falloff in deposit assessment fees (DAF). As a bit of background, DAF is a fee that’s nearly ubiquitous for analyzed Earnings Credit Rate (ECR) accounts and charged selectively on other types of accounts. It offsets a range of costs incurred by banks in holding deposits and varies by bank but averages between 12bp and 15bp.
Figure 1:
Average YoY & QoQ Gross TM Fee Growth
Q4 21 to Q4 22 & Q3 22 to Q4 22 by Quartile
In ordinary times, DAF accounts for 10% to 15% of all treasury management fees at a typical bank. During 2020 and 2021, however, pandemic-related stimulus and near–zero rates resulted in unprecedented growth in ECRs, up 40% on average, and DAF revenue increased in lockstep with the growth of deposits in ECR accounts. But now, with higher rates and $95B per month in quantitative tightening, deposits are flowing out of ECR at a rapid clip – down an average of about 20% YoY in fourth quarter 2022. (See Figure 2.) This time, DAF is falling in lockstep with those outflows.
Figure 2:
YoY Gross Deposit Administration Fee (DAF) Growth
Source(s): Curinos Commercial Analyzer Executive Summary; Curinos Analyzer; Curinos Analysis
Looking to the remainder of 2023, banks are playing catch-up on TM fees in real dollar terms – and the headwinds to DAF are likely to persist. In addition, evolving customer behaviors, including an increase in the demand for extended FDIC insurance through insured cash sweep programs, adds another layer of complexity. This underscores the importance of a robust annual pricing event for treasury management fees as well as an integrated approach to total relationship pricing across treasury management, deposits and lending.
