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The Rise in Loan-to-Deposit Ratios: Is 80 the New 60?

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  • James DiSalvo
  • Ryan Johnston

Abstract

Liquidity ratios at small banks have climbed in recent decades. Why has this happened? Should regulators be concerned? A traditional signal that a bank may not have enough liquid assets to cover a sudden loss of funding has increased dramatically at small banks in recent decades. Small banks? median ratio of the value of their loans outstanding to the value of their deposits has risen from around 60 percent in the second half of the 1980s to around 80 percent today. Meanwhile, the same measure of liquidity has increased about 5 percentage points at large banks. How can we explain this big increase in loan-to-deposit (LTD) ratios among small banks? Are higher LTD ratios here to stay? Do they pose risks to the safety and soundness of our small banks?

Suggested Citation

  • James DiSalvo & Ryan Johnston, 2017. "The Rise in Loan-to-Deposit Ratios: Is 80 the New 60?," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 2(3), pages 18-23, July.
    • Handle: RePEc:fip:fedpei:00021
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    5. James DiSalvo & Ryan Johnston, 2015. "How Our Region Differs," Banking Trends, Federal Reserve Bank of Philadelphia, issue Q3, pages 16-22.
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    2. Obi-Nwosu Victoria O & Chukwu, Kenechukwu Origin, 2022. "Monetary Policy and Deposit Money Banks Lending in Nigeria 2000-2020," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(3), pages 310-321, March.
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    7. Ahn, JaeBin & Kim, Youngju & Lim, Hyunjoon, 2025. "Assessing the bank lending channel of macroprudential policy: Evidence from the loan-to-deposit ratio regulation in Korea," Journal of Banking & Finance, Elsevier, vol. 180(C).
    8. Hasan, Iftekhar & Liu, Liuling & Saunders, Anthony & Zhang, Gaiyan, 2022. "Explicit deposit insurance design: International effects on bank lending during the global financial crisis✰," Journal of Financial Intermediation, Elsevier, vol. 51(C).

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