Bank Savers Might Finally Benefit From Fed Hikes, KBW CEO Says

(Bloomberg) -- The share of Federal Reserve rate hikes that banks pass along to savers, known as deposit betas, should finally start to grow, Keefe, Bruyette & Woods Chief Executive Officer Thomas Michaud said.

“I'm not terribly surprised that deposit betas have been low, but I also think it would be a mistake for the industry to believe that it's going to remain this way,” Michaud, 53, said Tuesday in an interview during the KBW Community Bank Investor Conference in New York.

U.S. banks have held off increasing offers for deposit accounts after years of relentlessly low interest rates, hoping to benefit from fatter margins between what they charge for loans and pay savers. Lenders should soon expect to share at least half of Fed rate increases with their customers, Michaud said.

As savers pay more attention to what banks will pay to hold their funds, deposits will become harder to come by, Michaud said. That could lead to more mergers among community and regional banks as the need for core deposits to fund loan growth will increase as interest rates rise, he said.

“Consolidation is coming, and now you're seeing the rise of the regional champions that are becoming powerhouses,” he said. “That will keep coming, and then they will really be able to challenge the bigger banks down the road.”

‘Share Winner'

Michaud said his company is making preparations for regulations known as the Markets in Financial Instruments Directive, or MiFID II, scheduled to go into effect in January in Europe. The rule will require banks to charge clients for research rather than include it in the cost of trading.

“This will put pressure on the overall commission pool coming from Europe and you'll see some market share shifts going forward,” said Michaud, whose firm is a unit of St. Louis-based Stifel Financial Corp. “Our goal is, if that does happen, to be a market share winner.”

--With assistance from Jenny Surane

To contact the reporter on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net.

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steven Crabill, Dan Kraut