Gita Thollesson
Manager, Strategic Advisory Services

In February, Q2 released its 2024 State of Commercial Banking Report, which analyzes data from Q2’s PrecisionLender proprietary database on commercial relationships from more than 160 banks and credit unions throughout the United States. The report also references economic data from several public sources and published industry research.

The watchword from the 2023 report was uncertainty. Below are the key takeaways from this year’s findings.

1. Liquidity Management Takes Center Stage
Banks are using a variety of tactics to grow deposits. They are raising deposit betas and offering frequent, modest rate increases to proactively compensate customers for the dynamic market landscape. Additionally, executive management has stepped up deposit valuations, including those on interest-bearing accounts, effectively coaching relationship managers to shift their focus from loans to deposits to achieve relationship profitability targets.

Liquidity constraints have led many financial institutions (FIs) to turn to the asset side of the balance sheet and become more prudent in deciding where to deploy scarce capital. This heightened level of conservatism led to a marked decline in loan originations during the fourth quarter of 2023.

2. Regulatory Changes Are Expected to Impact Capital
The Basel III Endgame proposed by U.S. regulators poses considerable challenges for FIs because both the global systemically important banks (G-SIBs) and regional banks with assets over $100 billion will likely be required to hold more capital than the current requirements. Industry leaders have cautioned this could curtail lending or raise borrowing costs, placing an undue burden on customers. It’s expected that overall capital levels in the industry will rise due to the Basel III Endgame, but the jury is out as to how much.

3. Higher Rates are Raising Repricing Risk on Maturing CRE Deals
With office vacancy rates as high as they are, the commercial real estate (CRE) market has been suffering. Some of those fixed-rate deals are scheduled to mature over the next couple of years. The estimated repricing risk on deals maturing in 2025 averages over 2%. For banks to maintain their current yields, they’ll have to pass those higher rates to customers.

4. Renewed Focus on Automation and Systems Integration
Many midsize and large businesses are looking for enterprise resource planning (ERP) integration with their banking system to help boost efficiencies in their back-office operations. This isn’t new, but it’s now moving down market, driving demand for more automation and seamless integration between banks and back-office systems. FIs that move quickly to meet this demand will have the edge over those that don’t prioritize integrating with leading ERP systems in 2024.

5. Technology Is Helping Bridge the Talent Gap
With the talent shortage hindering FIs’ ability to compete and win, they’re looking to technology to help bridge the employee experience gap. Generative AI is emerging as a transformative force in middle and back-office use cases, with tools such as AI copilots particularly useful in providing just-in-time coaching and on-the-job training to supplement the knowledge of employees who lack deep industry experience.

6. Opportunities Exist to Drive Deposit Growth From Small Businesses
Small businesses can be a potential source of deposit growth for FIs that can target and nurture those relationships effectively. Banks and credit unions can leverage the wealth of data they have about existing customers along with market data to create tailored solutions for small businesses. Technological advancements are making data aggregation and analysis less time-consuming, and more accessible and cost-effective, providing new opportunities for growth.


Gita Thollesson

Manager, Strategic Advisory Services

Gita Thollesson is manager of the strategic advisory services at Q2.  Her focus is on helping clients maximize relationship profitability through actionable market insights.


Prior to joining PrecisionLender a Q2 company, Ms. Thollesson spent 12 years at S&P Global Market Intelligence as director of analytics for S&P’s commercial loan middle and lower middle market information and advisory business, where she was charged with growing banks’ top-line revenue through proprietary fee, interest income and ROE enhancing initiatives within the constraints of competitive markets.


Ms. Thollesson has over 35 years of experience in the financial services industry, most of which has been in the global commercial banking market.