For years, deposits were often described as one of banking’s most stable advantages: granular, relationship-based funding that could support lending at a lower cost than wholesale markets. That advantage has not disappeared, but it is becoming more contestable. Customers can compare rates quickly, move money digitally and increasingly choose among banks, money-market products and new forms of payment and savings.
The result is that deposits are becoming a strategic issue again. The European Central Bank’s May 2026 Financial Stability Review noted that euro-area deposit funding conditions had remained benign but could tighten as benchmark rates and competition increased. It also highlighted significant differences in deposit pricing across markets.
For banks, the challenge is not simply how much to pay. It is how to build a deposit franchise that remains valuable when customers have more alternatives and when the economics of funding can change quickly.
Deposits are becoming more price-sensitive
A depositor who once accepted a low rate for convenience can now see competing offers in minutes. Digital onboarding reduces the friction of opening an account elsewhere, while instant and faster-payment systems reduce the friction of moving money.
This changes the beta of deposits: the speed and extent to which banks pass changes in market rates through to customers. The ECB’s 2026 Financial Stability Review observed that deposit rates and competitive intensity differ markedly across euro-area countries, with more competitive markets tending to offer higher rates.
The strategic implication is that deposit pricing cannot be managed in isolation from customer behaviour. A bank may preserve margin by delaying repricing, but only if the resulting attrition is acceptable. Conversely, aggressive rates may attract balances that leave as soon as a competitor offers more.
The quality of a deposit matters as much as the quantity
Two banks can report the same deposit balance and have very different funding resilience. Retail current accounts linked to salaries, payments and household bills tend to behave differently from large uninsured corporate balances or rate-sensitive deposits gathered through comparison platforms.
This distinction sits behind the Basel Committee’s principles for sound liquidity risk management, which emphasise the need to understand funding sources, concentration and liquidity under stress. Banks therefore need to analyse deposits by behaviour, not simply by accounting category.
Useful questions include how long a customer relationship has existed, how many products are connected to the account, how balances behaved during previous rate cycles, whether funds are operational or excess cash, and how quickly the customer can transfer them elsewhere.
Digital convenience can increase both loyalty and mobility
Digital banking is often treated as a retention tool because a good app can deepen engagement. That remains true, but the same technology also makes switching easier. Open banking, digital identity and faster payments can reduce the practical barriers that once kept deposits in place.
Banks therefore cannot rely on inertia alone. The deposit franchise increasingly depends on the value of the broader relationship: payments, cash management, credit, advice, security and integration into a customer’s financial routines. A slightly lower rate may still be competitive if the account solves more problems.
This is especially relevant in corporate banking, where deposits may be tied to treasury services, collections, payroll, trade finance and lending relationships. The more operationally embedded the bank becomes, the less the relationship is reducible to a single headline rate.
New forms of money raise the competitive bar
Tokenisation and stablecoins are not replacing bank deposits at scale today, but they are changing the conversation about what money can do. The BIS’s Project Agorá has demonstrated the potential for tokenised central-bank money and commercial-bank deposits to improve wholesale cross-border settlement through programmable technology.
Separately, the BIS’s June 2026 work on the next-generation monetary and financial system argues that innovation should be integrated into the two-tier monetary system while preserving trust and stability. For banks, the competitive message is clear: deposits may need to become more functional as well as more remunerative.
Customers may increasingly expect money to move instantly, integrate with software and carry richer data. A deposit account that remains operationally cumbersome can lose attractiveness even if its interest rate is competitive.
Deposit strategy is inseparable from asset strategy
Banks do not collect deposits for their own sake. Deposits fund assets, and the value of a deposit base depends partly on what the bank can earn on the other side of the balance sheet. Competition that raises funding costs therefore puts pressure on loan pricing and net interest margins.
The ECB review explicitly links stronger competition for deposits with pressure on margins. This creates a strategic choice: banks can reprice lending, accept lower margins, change the asset mix or seek operational efficiencies. None of those adjustments is instantaneous.
This is why deposit growth targets need to be connected to asset origination and capital planning. Paying up for deposits that cannot be deployed profitably can destroy value, while failing to secure stable funding can constrain lending when attractive opportunities emerge.
Liquidity resilience remains the non-negotiable constraint
The European Banking Authority’s continuing risk-assessment work places funding, liquidity, asset quality and profitability at the centre of its supervisory view of banking-sector resilience.
Recent banking episodes have demonstrated that digital communication and digital transfers can accelerate depositor reactions. That means historical assumptions about withdrawal speed deserve regular testing. Liquidity buffers, contingent funding plans, collateral readiness and communication protocols all need to reflect the possibility that outflows can occur faster than traditional models imply.
The European Banking Authority’s risk assessment work similarly provides a continuing supervisory lens on funding, liquidity, asset quality and profitability across European banks. The broader lesson is universal: a deposit franchise is valuable only if it is understood under both normal and stressed conditions.
What this means
Deposit competition is returning as a core strategic question because banking customers now have more information, more mobility and more alternatives. The strongest response is unlikely to be a permanent rate war. Banks need a clearer view of which deposits are stable, which relationships are profitable and which services make customers want to keep money in place.
In that environment, the deposit franchise becomes a product, a funding source and a relationship asset at the same time. Banks that manage all three dimensions together should be better positioned to protect liquidity without sacrificing economics.
References
• ECB — Financial Stability Review, May 2026
• Basel Committee — Principles for Sound Liquidity Risk Management and Supervision
• Bank for International Settlements — Project Agorá
• BIS — The path to the next-generation monetary and financial system