Article

Second Order Data: The Subtle Liquidity Crisis

by Shon Aguero • Oct 15, 2025

There has been much written in recent history about stablecoins and the impact they will have on the banking industry. However, a much more traditional threat has been showing itself over the last five years and bankers should be preparing their organizations now for a ramp-up in the speed of this potentially devastating trend.

The data sets below tell a story about an industry-wide shift to dependence on a funding source that is rapidly going away.

1. Community banks have swapped cheap deposits for large CDs at speed

This makes sense with the rapid rate rise we saw over the period analyzed in the chart. This data set alone could be explained away as “common economic sense” because, of course, large time deposits increased when rates went up. (By the way, don’t be fooled by the “small” label from the Fed reporting. These banks hold $6-7 trillion in assets. Basically, everyone except the Big Guys.)

However, when viewed in tandem with other relevant data points the story is a little more concerning. For example, the data set below shows that bank deposits did not rebound to their 2022 stimulus-fueled peak until mid-2024.

This tells us that over the last three years, community banks dramatically changed their funding mix. So, how much of the industry’s deposit growth did large time deposits account for? Well, pretty much all of it. Actually, more than all of it.

From YE 2022 through August 2025, large time deposits in the “small bank” Fed grouping grew $331 billion while total deposit growth was $306 billion.

That’s 108% meaning that all other deposit balances shrank during the same time period.

2. Meanwhile, the market of future CD buyers is shrinking.

According to a recent FDIC survey, 76.6% of bank customers below the age of 25 use a mobile device as their primary access to banking. That number only dropped to 74.8% for those below the age of 35. Meanwhile, only 19.3% of those 65 and older are primary mobile users. What does that have to do with CDs and liquidity? That kind of digital-native behavior strongly correlates with “shopping” behavior across all industries, including banking.

It’s easier than ever to shop rates and to move money across providers in seconds. The headache of filling out new paperwork at a competitor bank branch is gone. If it’s that easy, why not move your account for a handful of basis points?

This has correlated to a continuing decline in the number of families that own CDs. In 2019, only 7.7% of families in the US owned a CD. By 2022, that figure had dropped to 6.5%. In real numbers, that’s over 1.5 million fewer CD families in just three years. When the next Fed SCF comes out next year, how much further will it have fallen? How about 5-10 years from now?

3. Meanwhile, non-bank alternatives for cash are gaining popularity.

Money market fund assets have continued to see steady inflows of cash. Even satisfied bank depositors can be tempted by a brokerage sweep due to the ease of shopping and money movement.

The shape of the curve isn’t quite a hockey stick but it’s certainly much steeper than the bank deposit chart discussed earlier. FDIC insurance creates a bit of a moat for larger balances, but cash outflows for banks can still happen quickly. These non-bank bank accounts are legitimate competition for the sticky deposits that banks crave.

So, while the roar of concern over stablecoins is loud (and real), community banks have other wolves at the door. An industry-wide funding mix shift created by demographic fundamentals is a “silent killer” that we all need to be talking more about.

Having deep visibility into and granular intelligence around your bank’s deposit composition, rate sensitivity, demographic cohort behavior, and cash flows are more important than ever.

Banks that continuously see and segment deposit behaviors—by product, tenure, rate tier, and cohort—can reposition before runoff shows up in the call report.