Bankers Expect An Upswing In Deposits Over The Next 12 Months

The S&P Global Market Intelligence Q2 2025 US Bank Outlook Survey reveals that 81% of US bankers anticipate deposit growth over the next 12 months, the highest sentiment since Q4 2022, primarily driven by dropping deposit costs and a favorable net interest income outlook. Despite this overall bullishness, a growing proportion of respondents expect contraction in small business and wholesale/brokered deposits, alongside an anticipated rise in deposit competition across market areas. Banks are actively trimming deposit rates following Federal Reserve rate reductions and increasing the use of deposit rate specials and Federal Home Loan Bank advances for liquidity management.

Analysis

A Q2 2025 survey from S&P Global Market Intelligence indicates a significant rise in optimism within the US banking sector regarding deposit growth. A notable 81.1% of respondents now forecast an increase in deposits over the next year, the highest level since Q4 2022, up from 76.1% in the prior quarter. This bullish sentiment is underpinned by the industry's ability to lower deposit costs following the Federal Reserve's 100 basis point rate reduction in 2024, which buoys the outlook for net interest income. Despite this positive headline figure, the survey reveals underlying shifts in deposit composition, with an increasing proportion of bankers anticipating contractions in small business deposits (19.8% of respondents) and wholesale/brokered deposits (15.1%). Concurrently, competition is expected to intensify, with 50.5% of participants bracing for heightened rivalry in the next six months, a trend potentially accelerated by the Federal Reserve's anticipated lifting of the asset cap on Wells Fargo & Co. To manage liquidity, banks are increasingly turning to 'deposit rate specials' and advances from the Federal Home Loan Bank system, signaling a proactive but competitive approach to securing funding.

Key Decisions for Investors

• Given the widespread optimism for deposit growth and improving net interest income outlook, investors may consider maintaining or increasing exposure to the US banking sector, particularly institutions demonstrating effective management of falling deposit costs.
• Investors should scrutinize individual bank balance sheets for reliance on small business and wholesale deposits, as the survey indicates a potential contraction in these segments, favoring banks with strong core deposit franchises.
• Monitor for intensifying deposit competition and its impact on net interest margins over the next six months, especially as banks increase their use of 'deposit rate specials' to attract funds.
• The potential lifting of the asset cap on Wells Fargo & Co. (WFC) should be viewed as a positive catalyst for the company but a competitive headwind for peer banks that may face increased pressure on deposit gathering.