Daily Management Review

US Banks Caution That In 2024, Expensive Deposits Would Reduce Interest Income


US Banks Caution That In 2024, Expensive Deposits Would Reduce Interest Income
Earlier this week four American banks issued warnings about reduced interest revenue for this year, concluding a week of gloomy statements from the sector, which has been put under strain by high deposit costs.
Following almost a year of substantial earnings due to the high interest rates they could charge on loans, banks will face a number of difficulties in 2024, such as slower loan growth and possibly stricter capital regulations.
The Federal Reserve's planned rate reductions later this year may lessen the pressure on banks to increase deposit costs. To get inflation down to the central bank's target of 2%, however, several of the officials have cautioned that high rates could need to remain in place for a longer period of time.
"We continue to see rising deposit costs. Barring an end to the quantitative tightening and significant rate cuts, banks will face deposit pressures," said Rita Sahu and Megan Fox, banking credit analysts at Moody's.
Friday saw the opening of new tabs by Regions Financial, Fifth Third Bancorp, State Street, Comerica, and others, all of which joined peers in a warning about decreased net interest income (NII) in 2024.
Due to a one-time expense associated with the special assessment fee they must pay to replenish the deposit insurance fund of the Federal Deposit Insurance Corp., profits at all three banks also decreased.
This week, the KBW Regional Banking Index has dropped by 2.5 percent.