New research from the Federal Reserve Bank of New York reveals a troubling trend: deposits aren’t as sticky as banks thought. In fact, they’re becoming more flighty, and that spells trouble for financial institutions unprepared for the reality of modern money movement.
The findings, published in a recent Liberty Street Economics paper, show that deposit “flightiness” has reached historic highs. Translation? Your customers are more likely than ever to move their money when they spot better rates – or services – elsewhere. And if you’re still managing deposits like it’s 2010, you’re playing with fire.
The Numbers Don’t Lie
Researchers tracked how responsive depositors are to interest rate changes, essentially measuring how quickly money flies out the door when banks adjust their rates. What they found should make every bank CFO pay attention:
- Deposit flow sensitivity peaked in early 2022 just before the Fed started hiking rates
- The trend accelerated dramatically during COVID-19 when quantitative easing flooded the system with new reserves
- Corporate deposits which grew significantly during the pandemic proved especially volatile when rates started rising
This isn’t just academic theory. It’s the story of Silicon Valley Bank and other regional banks that discovered their “stable” deposit base could vanish faster than a wire transfer.
Why Quantitative Easing (QE) Made Everything Worse
QE didn’t just pump cash into the system, it rewired deposit behavior. The influx of rate-sensitive money changed the game, turning deposits into just another line item on a corporate treasury yield spreadsheet. But that doesn’t mean banks are powerless.
If deposits are now ‘hot money’, banks need to treat them like it. That means adopting infrastructure that gives their clients the same control and visibility they’d get from a money market fund or short-duration ETF. The future of deposit retention is programmable.
The Infrastructure Problem
Most banks are still operating with legacy systems that can’t handle the speed and complexity of modern deposit management. They’re using:
- Fragmented systems that can’t provide real-time visibility into deposit flows
- Manual processes for rate adjustments and sweeps
- Limited ability to segment deposits by risk profile or relationship value
- Outdated reconciliation processes that create operational bottlenecks
When deposits can move at the speed of an API call, banks need infrastructure that can keep up.
What Smart Banks Are Doing
The winners in this new environment aren’t just offering higher rates, they’re building smarter infrastructure. They’re implementing:
Real-time deposit monitoring that tracks flows and flags potential flight risks before they become problems. No more waiting for end-of-day reports to understand what’s happening with your funding.
Automated rate management that can respond to market conditions and competitive pressures without manual intervention. When your competitors raise rates, you need to know immediately and act fast.
Granular customer segmentation that identifies which deposits are truly sticky and which are at risk. Not all deposits are created equal and your pricing and retention strategies should reflect that.
Integrated treasury management that gives commercial customers the tools they need to manage their own cash flow, reducing the temptation to move money elsewhere.
The Qolo Advantage
At Qolo, we’ve seen this coming. Our Quantum Ledger platform gives banks the real-time visibility and control they need to manage deposit volatility. We’re not just talking about better reporting, we’re talking about infrastructure that lets banks:
- Monitor flows in real-time across all customer segments, sub-account hierarchies and payment rails
- Offer sophisticated virtual account management that keeps commercial customers engaged
- Automate treasury operations that used to require manual intervention
The Bottom Line
Deposit flightiness isn’t going away. If anything, it’s becoming the new normal as financial markets become more interconnected and customers become more sophisticated. Banks that adapt their infrastructure to this reality will thrive. Those that don’t will keep losing deposits to competitors who’ve figured out how to move faster.
