Schwab and State Street both reported a decline in customer deposits, the latest sign that rising interest rates continue to weigh on banks’ balance sheets.

At Schwab, the brokerage giant, deposits fell 11% to $326 billion from the previous quarter and were down 30% from a year earlier. State Street, one of the largest custody banks, said Monday that deposits totaled about $224 billion at the end of the first quarter, down 5% from December and 11% from a year ago.

All told, $41 billion in deposits left Schwab during the first three months of the year, and $11.8 billion left State Street.

State Street’s shares tumbled 9.2% after the custody bank reported disappointing earnings, making it the worst performer in the S&P 500. Schwab shares, which have been hammered amid broader banking turmoil that surfaced last month, rose 3.9%.

Banks of all sizes had grown to rely on customers’ deposits as a cheap source of funding they in turn can put to work by making loans and buying bonds and other securities.

But as the Federal Reserve moved starting last year to raise rates, bank customers began to shift their cash into higher-yielding investments, such as money-market funds. And banks are now paying a higher rate on the deposits that remain. The cost will become clearer as more banks report first-quarter results this week.

Source: Bloomberg

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