In 2020, the pandemic disrupted the global economy, creating stress and uncertainties for consumers and businesses. The U.S. government responded with assistance programs that, combined with increased personal savings, contributed to a record inflow of deposits to banks. The deposit inflows created historically high bank liquidity and many banks shifted their balance sheet composition to shorter-term, lower-yielding and non-yielding assets. The shift in asset composition and a prolonged period of low interest rates caused the net interest margin to decline to its lowest level on record. The loans-to-deposits ratio reached record lows in 2020 and 2021, while the cash-to-deposits ratio rose to 1.6 times the pre-pandemic level and almost three times the previous trough in 2006. Benefits of higher liquidity include reduced dependence on less stable sources of funding and an ability to respond to unforeseen deposit account withdrawals. However, higher liquidity can also challenge bank earnings, depending on loan demand and the shape of the yield curve.
Last Updated: November 19, 2025