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Funding costs at large institutions with big proportions of time deposits have been closing in on funding costs at peers, and maturing certificates of deposit are set to continue to buffer net interest margins.
September 26 -
Big bank margins have contracted for five consecutive quarters, and are poised to shrink again during the current period amid a continuing buildup of deposits and a flatter yield curve.
August 31
Business borrowing continued to expand in the third quarter despite the upheaval in global markets, driving an increase in total bank loan volume for the second consecutive period.
But the growth was heavily concentrated among large banks, leaving small banks to channel brimming deposits into holdings of cash and securities, according to preliminary data from the Federal Reserve.
If balance sheet levels at Sept. 21, the most recent date available, held through the final nine days of the period, commercial and industrial loan growth accelerated to an annual rate of 10% in the third quarter.
Loans overall notched a 3% annual rate of increase. That was slightly faster than in the second quarter, and only the second period of growth since the financial crisis, excluding the first quarter of 2010, when about $350 billion of assets and liabilities were consolidated onto balance sheets to reflect new securitization accounting rules.
At the 25 largest banks by assets, C&I loans grew at a 15% rate and total loans grew at a 4% rate. Among the rest of the industry, C&I loans grew at a 3% rate and total loans grew at a 0.4% rate.
Deposits surged again during the first half of the third quarter as the euro-zone crisis and the debt-ceiling standoff
Loan growth absorbed some of the deposit inflows at large banks, though they also greatly boosted holdings of securities — mostly mortgage bonds backed by the government — and drew down cash levels, perhaps reflecting greater confidence that rates will not rise anytime soon and hurt the value of such investments.
With loan growth anemic at small banks, a roughly $50 billion increase in deposits during the period through Sept. 21 translated into an $11 billion increase in securities and a $39 billion increase in cash.
To be sure, while large banks are outpacing small banks in business lending, total C&I volume remains about 18% below its peak in late 2008, and total loans are still 7% below a peak around the same time.
Moreover, executives offered cautious outlooks in presentations in September.
"Loan balances overall are relatively flat," said Brian Moynihan, Bank of America Corp.'s chief executive. "What you see is the grinding forward of the economy and the grinding forward of the consumer spending level in our businesses."
Rene F. Jones, M&T Bank Corp.'s chief financial officer, said, "It would be nice to see higher growth, but I don't know that we'll be seeing a lot of growth on the horizon."
