Bank Deposits May Drop for the First Time Since World War II

Over the past two months, bank analysts have lowered expectations for the highest bank deposit levels. The 24 institutions that make up the KBW Nasdaq Bank Index are expected to see a 6% reduction in deposits this year. According to the Federal Deposit Insurance Corporation, these 24 banks account for nearly 60% of the $19 trillion deposits in December.

While some analysts doubt the full-year fall will happen, even if the possibility would have been unthinkable a few months ago. Bank deposits have grown sharply at unprecedented during the pandemic. Analysts also forecasted a 3% raise at the end of February, but have also cut $1 trillion from their estimates since then. 

A decline will not harm banks. Over-deposits became a problem as major banks approached their capital limits. Banks were already pushing out many depositors because they couldn't spend money on loans.

Currently, some analysts expect money market funds to raise interest rates with the Fed, which makes them more attractive than bank deposits.