The Core Idea
Deposits are the foundation of banking. Banks use deposit funding to make loans, hold securities, support payments, and run the balance sheet.
That structure works because deposits are usually stable. The weakness appears when deposit behavior changes quickly, because bank assets often cannot shrink as fast as deposits can leave.
What Happened
The Federal Reserve’s May 2026 Financial Stability Report said uninsured deposits as a share of total bank assets had fallen from their 2022 peak. They were closer to levels seen in the mid-2010s.
The same report also noted that large banks had increased their use of short-term wholesale funding since 2023. Current levels were around the highest point of the past decade, although still below the peaks seen before 2009.
U.S. banks also remained profitable in the first quarter of 2026 and maintained strong capital and liquidity levels. At the same time, some loan categories still showed elevated stress, including credit cards, auto loans, and parts of commercial real estate.
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Structural Lens: Why This Can Happen to a Giant
Bank deposits are not all the same. Small insured deposits often behave differently from large uninsured deposits, corporate balances, brokered deposits, or rate-sensitive cash. This matters because a bank’s funding base depends on how depositors behave. If depositors are loyal, insured, and less sensitive to rates, funding can be stable and cheap.
If deposits are concentrated, uninsured, or highly rate-aware, the funding base can move faster. That speed can become a problem because the asset side of the bank usually moves more slowly.
Loans mature over time, securities may carry unrealized losses, and credit books cannot always be sold without taking a price hit. That mismatch is the core structure banks must manage.
Risk Transfer: Where the Pressure Builds
Deposit funding transfers liquidity risk to the bank. Depositors expect access to cash, while the bank puts part of that funding into longer-term assets.
Deposit insurance transfers part of the confidence burden to the public system. Insured depositors have less reason to run, while uninsured depositors still have more reason to watch the bank closely.
When uninsured or rate-sensitive deposits leave, banks may replace them with wholesale funding. That moves the risk from depositor confidence into market access and funding cost.
What Can Persist (And What Can Break)
What persists: the need for deposits. Banks still rely on deposits because they are central to lending, payments, and credit creation.
What can break: the assumption that deposit stability is permanent. Deposits can sit calmly for years, then move quickly when confidence or rates change.
Bottom Line
Deposits look simple because they sit quietly on the balance sheet. Their role is much bigger than that. A bank survives by keeping confidence, liquidity, and asset value aligned. When deposits move together, the structure stops being a cheap funding base and becomes a direct test of how fast the bank can produce cash.
