American Banker discusses, "How deposit competition reignited -- and why it should continue in 2023." They write, "​When the year started, deposits were one of the more boring parts of banks' balance sheets, as they had been for several years. But then inflation took off, and the Federal Reserve hiked interest rates aggressively, which resulted in higher yields on a variety of safe investments, such as money market funds and U.​S. Treasury securities. Banks, in turn, felt pressure to pay more for deposits -- to ensure that customers didn'​t park their money elsewhere. Suddenly the deposit market was no longer so sleepy." The article explains, "The industry was comfortable with some level of deposit outflows, given the vast amounts of cash that had flooded into the banking system from pandemic-​era stimulus funds and companies' larger cash buffers. And so far, the Fed'​s rapid rate hikes have generally helped banks by letting them charge more on their loans. But the central bank is set to keep rates high for a while, and the ongoing reduction of its bond portfolio is also removing liquidity from the system. So analysts expect deposit costs to keep rising next year, dampening the industry'​s profitability by reducing the benefit of higher rates on loans." American Banker adds, "The pressures are expected to be more muted at banks with higher-​quality deposits, which are less likely to leave or be repriced upward. '​We believe the quality and type of deposits will begin to separate bank stock performance,' RBC Capital Markets analyst Gerard Cassidy wrote in a note to clients. What follows is a look at how the deposit picture shifted for banks in 2022, and how the industry is responding to the new landscape."

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