Definition of Core Deposits

by Eric Fox ; Updated July 27, 2017
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Core deposits are funds on deposit at banks that are sourced from where the bank has its branches rather than from outside sources such as deposit brokers. Deposit brokers control large blocks of deposits on behalf of third parties and allocate them to whichever bank is offering the higher rates. Core deposits are considered more stable and cost less for the bank than other types of deposits. Examples of core deposits include checking and savings accounts and small-denomination certificates of deposit.

Core Deposit Premium

Banks that have a higher percentage of core deposits on their balance sheets receive a premium valuation by the marketplace. The weighted average premium paid for core deposits over the last 17 years has ranged from three percent to 47 percent. A premium valuation refers to a bank receiving a higher-than-average price when the bank is sold to another institution.

Decline in Core Deposits

Although core deposits are valued in the banking industry, the amount of core deposits as a percent of total assets has been in a long-term decline for many years. This is because customers have had access to other forms of investment accounts at competing financial institutions that offer higher rates of interest.

Core Deposit Statistics

The average core funding as a percentage of total bank assets for the entire U.S. banking industry declined to 57 percent as of September 2008. In 1996, the percentage was at 68 percent. This percentage is defined as a bank's average core funding during a particular quarter divided by the total assets on its balance sheet.

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