The flight of consumer funds into insured bank deposits continues unabated with a noticeable increase in volume during the fourth quarter of 2008.
Since the meltdown of the secondary market for securitizing loans resulting from the current economic crisis, banks have become increasingly reliant on consumer deposits for funds.
Because historically low interest rates and a flattened yield curve make it difficult for banks to differentiate their deposit products (e.g., with rewards for depositors), consumers are unlikely to tie up their savings for long periods.
At present, only a handful of banks in the United States are able to forecast consumers' price sensitivity and factor this demand variable into their pricing strategies.
Absent any surprise legislation, the FDIC insurance coverage cap will revert to the basic limit of $100,000 per deposit account on January 1, 2010, a change that may induce consumers to redeploy their savings among banks.
The impending change in deposit insurance is one reason for banks to improve the sophistication of their pricing capabilities, and the benefit of understanding consumer attitudes and behaviors toward pricing is another.
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