Is the FDIC Summary of Deposits Pure Fiction?

For decades, FDIC deposit market share data has been one of the banking industry's most important tools for assessing competitive position. It is relied upon by regulators, banks, consultants, and investors to measure market presence and evaluate branch expansion opportunities. However, analysis of two Pennsylvania counties, Lackawanna and Luzerne counties, suggests that the traditional branch-based methodology may be becoming increasingly disconnected from how households actually manage their savings.

These counties offer an interesting case study. Between 2021 and 2026, the number of households increased from approximately 220,300 to 225,000, representing modest but steady growth. At the same time, FDIC-reported deposits attributed to physical bank offices in the two counties increased from roughly $15.8 billion to $16.1 billion. Deposits per household, however, remained essentially flat, moving from approximately $71,870 to $71,490. The compound annual growth rate of deposits per household was actually slightly negative, while household growth exceeded total deposit growth.

The most striking trend may not be growth rates but rather the declining importance of physical offices themselves. The number of bank branches included in the market fell from 177 offices in 2021 to 157 in 2026, an 11% decline. Yet deposits remained relatively stable. This suggests deposits are becoming less dependent on branch proximity and more dependent on digital relationships, brand strength, rates, and product offerings.

The below table indexes 2021 to 100 to demonstrate what I just described.

This raises a fundamental question: what exactly does FDIC deposit market share measure today?

The FDIC Summary of Deposits system attributes deposits to physical banking offices. That methodology was highly logical when households overwhelmingly banked at institutions with local branch networks. 

Today, however, consumers routinely place funds with institutions that may have no branches in their county, state, or even region. Online banks such as Ally Bank and SoFi Bank compete directly with community and regional banks for deposits while maintaining little or no branch infrastructure. 

Similarly, consumers increasingly hold cash-equivalent assets in brokerage sweep accounts, money market mutual funds, Treasury bills, and other vehicles that sit entirely outside traditional deposit market share calculations.

As a result, a bank's reported deposit market share within a county may tell us where deposits are booked rather than where residents actually store their wealth. A community bank could maintain a stable branch-based market share while losing household wallet share to online banks and investment platforms. Conversely, an online institution could have substantial relationships with local households while appearing to have no market presence at all.

The competitive implications are significant. Regulators use deposit market share extensively in merger and acquisition analysis. Yet if a growing percentage of household savings resides outside locally reported branch deposits, concentrations based solely on branch data may overstate actual market power and understate competition. The market experienced by consumers is increasingly national, not local.

A potential solution would be for banks and credit unions to report deposits based on the ZIP code of the depositor's residence or business location rather than solely the location of the branch where balances are assigned. While implementation would require some data cleanup and privacy safeguards, the resulting information would provide a much more accurate picture of where households and businesses actually place their money. It would also allow banks to make better strategic decisions and regulators to better evaluate competition from digital banks, credit unions, and other federally insured institutions that operate without extensive branch networks.

The Lackawanna-Luzerne data support this theory. Household growth has continued, branch counts have fallen, and deposits per household have not grown. All this while inflation rose a total of 23% since 2021, and money supply (M2) has grown 2.3%, and banks cost of deposits averaged 1.5%-2% annually. Aggregate deposit growth in Lackawanna-Luzerne was less than the interest paid on those deposits.

Those trends are consistent with a banking system in which physical location is no longer the primary determinant of deposit gathering. As banking becomes increasingly digital, a branch-based deposit market share framework may be measuring yesterday's competitive landscape rather than today's reality. The next evolution of market share reporting may require shifting focus from where deposits are booked to where depositors actually live.

Let's make the change.

~ Jeff

 

Guest Post: Financial Markets and Economic Update for the Third Quarter 2026

Bond Vigilantes

When the bond market leads the Federal Reserve, they usually must follow or face the wrath of the bond vigilantes.  They’re back!  The Fed Funds futures markets had a 94% chance of a rate hike at the September 16^th FOMC meeting.  The 2-year Treasury yield rose by 61 basis points since the end of the second quarter; the 10-year Treasury rose by 60 basis points and exceeded 5.00% as of now.  The FOMC unanimously raised the Fed Funds rate by 25 basis points to 3.75% to 4.00%, for the first hike since July, 2023.  Be careful what you wish for as the Fed rarely stops at one single increase in Fed Funds once they start tightening.

The bond vigilantes have been protesting all quarter, but especially in September.  They pushed rates up to combat inflation uncertainty, high oil ($102), gas ($4.47), and diesel ($6.44) prices because of the Ukraine war and Iran conflict (or should I call it a standoff?), and rising commodity prices (supporting the dollar).  Global debt is rising as capital investment for AI and manufacturing plant buildouts increases demand for long term debt.  The federal government deficit has pushed Treasury issuance up with $40 trillion+ now outstanding.  Or maybe the vigilantes are just protesting Maria Bartiromo’s exit from Fox News on September 3rd.

So, bond vigilantes, what’s next for the 10-year Treasury yield?  4.50% or 5.50%?

Inflation

With the new Fed Chairman, Kevin Warsh, now in place, I am watching Fed news conferences again.  When asked why the Fed projections still show it would take two years to get to the PCE goal (as I’ve been complaining about for years), Warsh almost laughed.  He simply said inflation is too high and we must get to the 2.0% goal in a quicker, more timely fashion.  At 3:00, he answered a question, snatched his papers, and abruptly walked out.

I agree that inflation measures year-over-year are too high, as evidenced by CPI (August) at +3.4%, PPI (August) at +5.4%, and PCE (July) at +3.7%.  Core CPI (August) was at +2.4% (which is at the implied target), core PPI (August) at +4.6%, and core PCE (July) at +3.3%.  In the 2s for all would be infinitely better.

There are measures that are much lower- Truflation, which is a set of indices developed in December 2021 to replicate CPI and PCE, but digitally in real time for 13 million goods and services on a daily basis, eliminating the survey process for thousands of prices and delays of the standard CPI and PCE measures.  As of September 18^th, Truflation y-o-y for CPI was +2.4% versus the standard CPI at +3.4% and for PCE was +2.5% versus the delayed +3.7%.  Truflation has been under 3.0% for all of 2026.  For Bloomberg users, the ticker is TRUFUS44.  Let’s hope the Fed task force on inflation at least considers this metric.  What do you think about Truflation?

Rogue AI

We’ve heard about several instances of AI models breaking their containment or testing environment and going where they should not go- to the Internet and onto companies’ websites.  Open AI’s agent escaped the test environment, got onto the Internet, and hacked the servers of Hugging Face.  Google’s Gemini hacked and accessed three real companies’ websites by obtaining or guessing passwords.  Anthropic’s Mythos and Meta’s Llama both broke out of their containment and Mythos uploaded malicious software to a site.  Alibaba’s AI model found sites on the Internet and started mining cryptocurrency.  What next?  It’s clearly a risk that companies and individuals must contemplate sooner rather than later.

Some of My Favorite Economic Indicators

Leading Economic Indicators (LEI)- The up and down pattern of 2026 continues.  August’s LEI was -.1%, July was +.2%, and June showed no change.  In the past 42 months, 33 months were negative, 5 months had no change, and 4 months were positive (all in 2026).  Recent trends are not telling us much about future growth.  The many months of downturn over the past 3.5 years didn’t tell us much about growth either, as the LEI kept pointing to recession that never came.

Real GDP- Speaking of growth, it’s been holding in there, with 2Q26 at +2.1% and 1Q26 at +1.5%.  As far as the 3Q26 projections by the Atlanta Fed, GDP Now stands at +5.1% as of now.

Moody’s Beige Book Index- The most recent report for September showed 10 districts with increasing growth and two with unchanged growth.  Philadelphia is increasing this time.  The Moody’s Beige Book index is higher again in September at 63.9, compared to 44.4 in July and 36.1 in June.

M2 Money Supply- M2 y-o-y growth has been solid.  July was +5.4%, June was +5.3%, May was +5.4%, and April was +4.5%.  This increase in money supply is supporting GDP growth.

Productivity- This measure improved in 2Q26 to +1.4%, following +.8% in 1Q26.  Unit labor costs were modest at +1.2% and +1.3% in 2Q26 and 1Q26, respectively.  Productivity is at a level now that can support a portion of wage increases.

Housing- Prices continue to moderate on a y-o-y basis.  Case Shiller was +2.1% in June versus May of +1.6%.  FHFA for June was +2.3% versus May of +2.4%.  Moody’s HPI was +1.9% in July versus June of +2.2%.  Existing home median sale prices rose +1.6% in August.

Federal Reserve Task Forces

“It’s been a long time coming but I know a change is gonna come.”  Sam Cooke

Kevin Warsh is forcing change at the Fed.  Five task forces were created to study their subjects and report back by year-end 2026 at the latest.  These task forces are: 1. Communications (i.e. no press conferences!), 2. Balance sheet policy and management, 3. Quality and timeliness of data sources, 4. Productivity and costs including technology and AI, and 5. Inflation framework.

September 11^th

I can clearly remember that fateful day 25 years ago.  The feelings of dread, sadness, horror, and helplessness are still there.  The feeling of deep loss remains over the loss of my friends at Sandler O’Neill who were killed that day.  They were so proud of their offices on the 104^th floor of the South Tower.  Each year, on September 11^th, I think of them and vow to never forget them.  They went to work that morning and had no idea of the tragedy to come.  So here goes- Stacey, Gus, Herman, Chris, Jeff, Kevin, and Judd.  And to Anthony, who I met after the tragedy and who was not there that day, I think of you as well.  God bless you all.

Thanks for reading!  As always, I appreciate your support!  DLJ 09/20/26

Dorothy Jaworski has worked at large and small banks for over 30 years; much of that time has been spent in investment portfolio management, risk management, and financial analysis. Dorothy recently retired from Penn Community Bank where she worked since 2004. She is the author of Just Another Good Soldier, and Honoring Stephen Jaworski, which details the 11th Infantry Regiment's WWII crossing of the Moselle River where her uncle, Pfc. Stephen W. Jaworski, gave his last full measure of devotion.

Disclaimer: This publication is provided to you solely for educational and entertainment purposes.  The information contained herein is based on sources believed to be reliable but is not represented to be complete and its accuracy is not guaranteed.  The expressed opinions, views, and estimates are those of the author as of this date and are subject to change without notice.  The author cannot provide investment advice but welcomes your comments.

Deposits: Let's Talk

According to the Independent Community Bankers of America (ICBA), stablecoin wallets could suck $1.3 trillion, with a "T", out of the insured deposit system. Predominantly from banks. I'm thinking the ICBA would care less about deposits leaving credit unions.

The concern and the headline number is that if stablecoin becomes a widely adopted payment rail, like ACH, wires, and Visa/MC, and stablecoin issuers can offer rewards, then businesses and perhaps individuals will park more of their cash holdings in a stablecoin wallet. The other payments rails flow through banks, so the "wallets" are essentially the customer operating accounts.

Do I think the great vacuum sucking machine of deposits leaving banks for stablecoin wallets will come to fruition? Probably not, at least not at the levels projected. And the Clarity Act recently failed to pass the Senate, due in part to not closing the rewards loophole, more like a tunnel a freight train could pass through, left in the Genius Act that forbids the paying of interest to stablecoin providers but does not forbid rewards. 

And bankers are beginning to adapt. The Clearing House is developing a shared, bank‑led platform for clearing and settling tokenized deposits. It is designed to keep customer funds inside regulated bank accounts while adding on‑chain speed, programmability, and 24/7 settlement. A cadre of bank trade associations are doing the same in an initiative called Bank Chain. 

Even if the $1.3T is a huge miss, I think we're missing where there is titanic risk. The alternatives to bank deposits. Before I elaborate, let's look at past behaviors during different rate and pricing transparency in the recent past.

The above chart is a macro look at the spreads delivered by asset products, namely loans and investment securities, and liability products, primarily deposits, during different rate scenarios. The dotted line represents the Fed Funds Rate. The orange line, asset spreads. And the green line, liability/deposit spreads. Many of my readers know that my firm measures product profitability for community financial institutions on an outsourced basis and that is where I am getting these statistics from. Our outsourcing client averages.

In 2006, when the Fed Funds Rate was 5%-5.25%, as it was in 2023, deposit spreads actually exceeded asset spreads although deposits have negligible credit risk. At that time, there were nearly 100,000 bank branches nationwide.

Then came the Great Recession and the Fed Funds Rate fell to zero. Deposit spreads plummeted and lingered around 1% for the remainder of the zero-rate environment until the Fed started tightening in 2017. The number of bank branches plummeted to around 70,000. Why? Deposits were less profitable. Therefore branches were less profitable. And the declining number of customer visits to branches made them easy targets for consolidation. And as it turned out, there was little deposit attrition from consolidated branches. 

Because customers did most of their transactions online or on mobile. No branch. No problem. 

At peak Fed Funds Rate in 4Q07, average deposits per personal money market accounts were $55,000. After it went to zero, that number declined to its trough of $45,000 in 4Q08. Perhaps it was households burning through cash. But once rates went to zero and stayed there until 2017, personal money market average balances per account methodically climbed to $93,000. Why not keep it in an FDIC insured account with immediate availability if rates were minimal no matter the instrument of choice?

When rates shot up again in 2022, something different happened. At Covid's start in 1Q20, average balances per account was $94,000. Two years later, 1Q22, the average balance was $131,000. Zero rates. Government stimulus. Economic uncertainty.

Then inflation and the Fed's rapid response to try and curtail it in 2022 and 2023 by raising rates faster than at any time in recent memory. What happened to the average balances per personal money market accounts? They plummeted from its 1Q22 peak to a 3Q24 trough of $76,000 per account, a 42% decline. A similar thing happened in interest bearing retail checking accounts. Where did the money go?

The below chart shows that some flowed into CDs, as the proportion of CDs to total deposits shot up from around 15% to over 30% during the rates up period.

That would be the good news. Lower cost interest bearing checking and money market balances flowed to higher cost CDs. Still in our bank. But that isn't the whole story. Not by a long shot.

The above chart shows the Breckenridge ski lift rise of money market mutual fund assets, a clear alternative to bank accounts. Sofi Bank, a neo bank that has high yielding assets (mostly student loans) funded by high-cost deposits, grew from $155 million in deposits in 2022 when it acquired a small California bank to $47 billion in deposits today. Where did those deposits come from?

So my concern is less about where the stablecoin deposit headwind will take us, and more about where neo banks and alternatives to bank deposits will take us if we continue to manage our funding like we have done in the past. Because if we keep rates low during Fed tightening periods, people will seek alternatives, like they did in 2022-23. And they won't even call us to complain.

How will we change our funding strategy to mitigate this risk?

~ Jeff