US banks' uninsured deposit total continued to fall in the third quarter but at a much slower rate.
The industry's uninsured deposits dropped just 0.5% quarter over quarter, compared to sequential declines of 7.8% in the first quarter and 2.4% in the second quarter, according to S&P Global Market Intelligence data.
While sharper sequential drops have stalled, levels are still down from historical trends as US banks' $6.851 trillion in uninsured deposits at Sept. 30 marks the lowest level since the first quarter of 2020, while the 41.1% percentage of total deposits is the lowest in more than three years.
Among banks with at least $25 billion in assets in the third quarter, uninsured deposits made up at least half of 14 banks' total deposits. Those banks could undergo more intense regulatory exams following an update from the Federal Deposit Insurance Corp. stating that examiners must provide written analyses of their evaluation of the stability of a bank's uninsured deposit base if it makes up 50% or more of total deposits.
Deutsche Bank Trust Co. Americas maintained its spot as the bank with the highest proportion of uninsured deposits to total deposits and Bank of New York Mellon, a subsidiary of Bank of New York Mellon Corp., and State Street Bank and Trust Co. remained second and third, respectively.
Typically, trust banks and banks with large corporate client bases tend to have higher levels of uninsured deposits. Those companies describe much of their uninsured corporate deposits as "stickier" than uninsured retail deposits.
In the case of corporate client deposits, those can be stickier because of their necessity for business operations to pay payroll, collect money from vendors and for other regular corporate operations. They may be well integrated with treasury management services provided by the bank, which would make moving deposit accounts to another financial institution a significant undertaking.
Separately, a municipal deposit backed by pledged securities such as Treasurys would have collateral available to make up for any shortfall from deposit insurance.
BNY Mellon NA, another subsidiary of Bank of New York Mellon Corp., had the largest quarter-over-quarter percentage drop in total uninsured deposits among banks in the analysis with a decline of 11.7%. Conversely, Northern Trust Co. saw the largest quarter-over-quarter percentage rise with an increase of 7.8%.
JPMorgan Chase & Co. subsidiary JPMorgan Chase Bank NA saw the largest dollar amount decline in uninsured deposits, dropping $28.16 billion quarter over quarter. Meanwhile, Wells Fargo & Co. subsidiary Wells Fargo Bank NA had the largest dollar increase, up $39.41 billion.
Uninsured deposits came under a microscope after the failures of Silicon Valley Bank and Signature Bank, both of which had high levels of uninsured deposits. Since then, the industry's uninsured deposit total began falling as banks took a second look at what they include in their tally and also made steps to reduce their exposure, such as through "deposit spreading" services like those offered by IntraFi Network LLC.
However, regulators are still keeping a sharp eye on this data, with the FDIC recently disclosing that it is currently reviewing banks' methodology for what they include in or exclude from their uninsured deposits.
There has been back-and-forth about what should or should not be included in uninsured deposit totals since the failures, with some banks excluding intercompany and municipal deposits from their totals, arguing that those deposits are more sticky. The FDIC, however, clarified in a July letter that banks should include those in uninsured deposits.
The agency reiterated that stance in its final rule on its special assessment to replenish the Deposit Insurance Fund after the failures, stating that "in the FDIC's view, the presence of collateral does not fully mitigate run risk."
As such, the agency's ongoing review of how banks tally their uninsured deposits "may result in amendments to uninsured deposits and related items reported on the Call Report if the FDIC determines that an institution is not reporting these items in accordance with the instructions," the agency said in the final rule.