The deposit growth conundrum.

The question on whether deposit growth has stopped or is starting to tail off is one that is being tossed around quite a bit lately. A look at the numbers shows that from Dec. 31, 2004, through Dec. 31, 2005, total domestic deposits grew by roughly $500 billion, at the nation's commercial banks,

Low-yielding transaction accounts saw almost $60 billion worth of deposits flow out. Some of this may be due to transaction sweep accounts that allow banks to move deposits around to meet reserve requirements, but the trend, as a whole, cannot be ignored. Money market and savings account deposit levels were up by $191 billion, year-over-year, in large part due to higher rates as well.

On a regional basis the Southeast saw total domestic deposits increase by $250 billion. Money market and savings accounts saw the largest dollar gain for the region, driven by improving yields. The Southeast, along with the Southwest, were the only regions to show an increase in transaction account deposits, the other regions experienced net outflows in the segment.

On the flip side the Northeast saw deposit levels drop by $130 billion. The drop was felt across all the segments, but was the greatest by dollar volume in the money market and savings account segment. In fact, it was the only region to have outflows in that segment.

On the whole, deposit growth will remain a challenge in 2006 with fierce competition forcing up yields and supply potentially shrinking as consumers tap into savings to service the mountains of adjustable rate debt that many have accumulated.

John M. McCune, SNL Financial, Charlottesville, Va., jmmccune@snlfinancial.co

Year-over-year domestic deposit trends, U.S. commercial banks,
savings banks, and savings institutions ($ in thousands)

Region               Midatlantic       Midwest        Northeast

MMDA & savings
  accounts
2005                  548,528,263     998,157,057     113,469,300
2004                  502,123,560     951,576,411     196,047,493
Change                 46,404,703      46,580,646    (82,578,193)

Total transaction
  accounts
2005                  138,702,984     279,192,958      30,013,815
2004                  157,355,932     292,515,437      57,880,842
Change               (18,652,948)    (13,322,479)    (27,867,027)

Total time
  deposits
2005                  429,090,992     646,480,587      84,438,041
2004                  342,666,097     547,831,473     104,051,525
Change                 86,424,895      98,649,114    (19,613,484)

Total domestic
  deposits
2005                1,116,285,757   1,923,825,187     227,921,567
2004                1,002,189,633   1,791,929,479     357,980,783
Change                114,096,124     131,895,708   (130.059,216)

Region                Southeast      Southwest        West

MMDA & savings
  accounts
2005                  979,430,361   228,672,976    384,858,067
2004                  828,655,267   199,150,004    384,305,110
Change                150,775,094    29,522,972        552,957

Total transaction
  accounts
2005                  243,347,648    75,050,959     71,221,879
2004                  231,331,048    74,417,599     83,784,493
Change                 12,016,600       633,360   (12,562,614)

Total time
  deposits
2005                  551,804,823   141,061,407    276,836,521
2004                  461,105,458   116,315,465    187,112,660
Change                 90,699,365    24,745,942     89,723,861

Total domestic
  deposits
2005                1,774,565,706   444,706,527    732,915,301
2004                1,521,089,510   389,885,489    655,234,273
Change                253,476,196    54,821,038     77,681,028

Region                  Total

MMDA & savings
  accounts
2005                3,253,116,024
2004                3,061,857,845
Change                191,258,179

Total transaction
  accounts
2005                  837,530,243
2004                  897,285,351
Change               (59,755,108)

Total time
  deposits
2005                2,129,712,371
2004                1,759,082,678
Change                370,629,693

Total domestic
  deposits
2005                6,220,220,045
2004                5,718,309,167
Change                501,910,878

Note: The data in the table reflects aggregated U.S. commercial bank,
savings bank, and savings institution data. Deposits are categorized
into regional buckets based on the headquarters of the institution
filing the information with its regulatory agency. This data
represents a best-efforts proxy for actual deposit levels across the
regions, but may be biased by acquisitions that remove companies from
states as the acquired institu-tions become defunct.