The banking business has historically been about taking in deposits at one rate and lending that same money out at a higher rate, the differential being profit for the bank after non-deposit expenses.  The Loan/Deposit ratio has always been a measure how well this is being done.  What is interesting about this ratio over the last 10 years is how much it has decreased during the last 4 years (2008 to 2011).

2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
88.61	87.99	87.8	88.63	88.91	90.49	84.69	78.09	77.74	74.35

A closer look reveals the following:   An initial analysis shows that for the years 2002 to 2007 both loans and deposits increased at similar rates which resulted in the Loan/Deposit ratio remaining relatively constant (around 88%). Starting in 2008 deposits continued to increase while loans remained somewhat flat. This failure of loan volumes to keep pace with deposits resulted in a steady decrease of the Loan/Deposit ratio (now around 74%). This change in the progression of loan volume is in line with the recession of 2008. The analysis raises a number of questions, for example, is the drop in loan demand entirely the result of the housing downturn or have other loan types also had an impact?  The Real Estate loan losses continue, have banks backed away from all lending or just Real Estate lending?  Perhaps the biggest question is the one in our opening line “Is this a fundamental change in the Banking industry?”  The answer can only be answered over time; meanwhile, we will look at some other interesting changes in banking with our next release.