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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Over the past two years, bank analysts have increasingly deployed the term “deposit beta” to describe the sensitivity of lenders to customer deposits. A surge of interest rates worldwide has encouraged more depositors to seek better returns. Banks that failed to keep up have been left exposed.
Between spring 2022 and 2023, the US federal funds effective rate soared from almost zero to more than 5 per cent. Not all banks reacted quickly by lifting deposit rates. This was partly due to perceived deposit excess, which banks struggled to parlay into loans or investments.
But banks that relied on relatively cheap financing from depositors, worth $18.2tn in total, soon noticed the shift in depositor behaviour. In the year to mid-April 2023, some $973bn left US banks, according to Federal Reserve data. Often these funds moved to money market funds, which…