US Mid-cap Banks: “Sweep” dreams

Research evidence excerpt

US Mid-cap Banks: “Sweep” dreams

Accessible version

US Mid-cap Banks

“Sweep” dreams

Industry Overview

Where we stand on cash sorting debate 18 May 2026

We see deposit sorting (frictionless movement of excess liquidity to higher yielding Equity

alternatives) as a real threat to industry NIMs, all else equal, via stickier/rising deposit United States

costs. That said, the risk has a long tail: it will be the younger demographic that is more Banks

likely to adopt AI to maximize returns on excess liquidity. (Our research shows the “Great Brandon Berman

Wealth Transfer” expected to span the next two decades). Structural differences (i.e., Research Analyst

accessibility, technology) suggest bank disintermediation and funding stability risk from BofAS+1 646 855 3933

cash sorting are greater today vs. when money market funds (MMFs) were introduced in brandon.berman@bofa.com

late-1900s. However, the latter concerns are overstated and overlook proven adaptability Ebrahim H. Poonawala

Research Analyst

by the industry, specifically the potential AI-related productivity/ efficiency gains. BofAS

+1 646 743 0490

Composition today, strategy tomorrow ebrahim.poonawala@bofa.com

Banks with lower L/D ratios and a higher percentage of NIB deposits should be better

positioned to combat cash sorting, though such competition is likely unavoidable. We Acronyms:

expand our screen to include available deposit market share (proxy for competitiveness), CDs: certificates of deposit

CTD beta, and % uninsured. Lower risk: FHB, BOH, CBC. Higher risk: FLG, ASB, FHN.

CTD: cycle to dateWe believe deposit acquisition strategies will come into focus, especially those that are

L/D: loan/deposit ratiomarried to banking services. We also expect banks to find ways to optimize funding