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US Banks Plan Sharp Cuts In Corporate Deposit Returns As Fed Lowers Interest Rates: Could Financial Stocks Take A Hit?

U.S. banks are preparing to slash interest payments on corporate deposits as the Federal Reserve’s recent rate cuts take effect.

Following the Fed's decision in September to lower its benchmark rate by 50 basis points, the first reduction in over four years, U.S. financial institutions are focusing on corporate deposits as a key area to maintain profit margins amid declining interest levels, according to a report from the Financial Times.

Corporate Deposit Rates Come Under Pressure

In the wake of the Federal Reserve’s rapid rate hikes through 2022 and early 2023, banks increased interest payments on deposits to retain customers.

As benchmark interest rates soared to 23-year highs, corporate depositors, in particular, saw rates on their accounts rise sharply with Fed policy, the FT reported. These accounts became a significant tool for banks to attract and retain capital, preventing businesses from shifting funds into higher-yielding alternatives like money market funds.

With the recent rate cuts and more expected in the coming months, U.S. banks are now focusing on reducing the costs associated with these corporate deposits.

Several industry executives have echoed this sentiment. Bruce Van Saun, CEO of Citizens Financial Group Inc. (NYSE:CFG), told the FT that banks are actively pricing down deposits in corporate accounts since “they were demanding every ...