Deposit market share - Definition and Overview

Deposit Market Share is a way of measuring the size and performance of Banks.

Definition

In the simplest sense of the phrase, "deposit market share" would be defined as the amount on deposit at a particular bank divided by the total amount on deposit at all banks. In practice however, the term "deposit market share" is used to refer to the FDIC calculated deposit market share of commercial banks and savings and loan organizations. The FDIC calculations do not include money deposited at credit unions, and the cash accounts at brokerage firms.

Importance of this metric

This metric is considered by many to be an important gauge of how well a particular bank is performming. Many say though that it is misleading for these reasons:

• FDIC insured deposits have been for the past twenty years growing smaller and smaller as bank customers have elected to put more money into stocks, bonds, mutual funds, and annuities. The amount in mutual funds is double the amount in bank accounts, the amount of money in Money Market Funds is the same as in checking accounts. These businesses are as profitable or even more so to the financial services company then normal bank accounts, so if customers are moving money from a particular bank's normal bank accounts to bank-owned mutual funds, the bank does not lose anything. If one was only looking at deposit market shares however, it would appear to shrink.

• Deposit market share does not include credit unions, who are formidable competitors to large commercial banks.

• Deposit market share gives no indication as to how many other financial products and services a particular bank's depositers might be buying from that bank. For example, Bank X might have a 10 percent deposit market share, yet if all those depositers simply have checking accounts and nothing else with that Bank, it would make nowhere near as much money as Bank Y in the same market, who might have 2 percent deposit market share yet sucsessfully sell mutual funds, mortgages, and insurance.

Use in anti trust proceedings

When two banks merge, a survey is done to ensure that the combined deposit market shares will be no larger than 25? percent in a particular state, or 10 percent nationally. If one or both of those percentages are higher than allowed, the banks can elect to still do the merger but they would need to divest (ie. sell off branches and customer accounts) enough branches to get them within the guidelines.