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Funding Costs Plummet at Most U.S. Banks, Analysis Finds

February 21, 2020, 09:15 AM
Filed Under: Banking

Funding costs dropped sharply in the fourth quarter of 2019, with some U.S. banks saying they have more room to fall as the industry implements additional price reductions and as low interest rates filter through portfolios.

That's according to a new briefing paper published by S&P Global Market Intelligence.

CIT Group Inc. said in late January 2020 that it had trimmed the rate on its flagship online savings account by 65 basis points since May 2019 as the Federal Reserve cut its policy rate by 75 basis points in the second half of 2019. The New York-based bank said it had not encountered meaningful withdrawals, and that it planned to lower rates a bit more in the first quarter of 2020.

Citizens Financial Group Inc. similarly said it expects its deposit prices to continue to fall through the first half of 2020 if the Fed remains on hold and the interest rate environment remains relatively stable. The bank also gave guidance that further declines could diminish later in the year, though it could continue to benefit from maturing time deposits.

Overall, U.S. banks' cost of funds fell 12.5 basis points from the third quarter to 0.84% in the fourth quarter of 2019 after notching down by less than a basis point from the second quarter to the third quarter, according to S&P Global Market Intelligence data. The fourth-quarter decline was larger in magnitude than any quarterly increase when costs were rising during the most recent Fed tightening cycle. The largest increase in banks' cost of funds in that time frame was a 10.7 basis point jump during the fourth quarter of 2018.

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