Loan-To-Deposit Ratio Still Lags Below Pre-Pandemic Numbers

The industry is still deploying deposits for loans at a lower rate than before the Covid-19 pandemic.

The industry’s loan-to-deposit ratio remained at about 66% as of the fourth quarter of 2025, according to data from the Federal Deposit Insurance Corp. That’s compared with just over 68% in the first quarter of 2020.

Looking at the loan-to-deposit ratio for certain periods tells a similar story. The median for the years from 2016 to 2025 was under 66%, according to an analysis of the FDIC data by Mercer Capital, a valuation and transaction advisory firm. That’s below the median of about 70% from 2011 to 2015. And it’s significantly below the median for 2000 to 2007 — the years leading up to the financial crisis — which totaled more than 90%.

It’s unlikely the industry would want this ratio to return to that pre-crisis level, but a lower loan-to-deposit ratio has its drawbacks.

“That’s a lot of undeployed deposits hangover from the Covid days,” Mark Kanaly, a partner at the law firm Alston & Bird, said during a presentation on the state of the industry at Bank Director’s recent Bank C-Suite Summit in Nashville, Tennessee. “But this is one of the biggest things that’s sort of punishing our space at the moment.”

Kanaly noted that this was one of the factors hurting some banks’ stock prices. Simply put, undeployed deposits means lower earnings and sagging returns for shareholders.

“If you can’t lend the money out and you don’t have a fee business, then your returns will be lower,” says Jeff Davis, a managing director of Mercer Capital’s financial institutions group. “This is a leverage business.”

There is a divergence in the loan-to-deposit ratio by institution size. The largest institutions — those with more than $250 billion in assets — had the lowest median ratio of 55% from 2016 to 2025, according to the analysis from Mercer. Banks with $1 billion to $10 billion in assets had the highest ratio with almost 85%. Davis believes that the larger institutions were flooded with additional deposits in the wake of the global financial crisis and the regional bank failures in March 2023.

But banks remain sharply focused on boosting the strength of deposit franchises, especially securing low-cost core funding, experts say. The industry has had to pay up for deposits since interest rates began to spike after the Covid-19 pandemic. The cost of deposits went from 0.12% in the fourth quarter of 2021 to 2.52% in the third quarter of 2024, according to the FDIC data. It has since ticked down to 1.99% for the fourth quarter of last year.

“Cheap, low-cost deposits are golden,” Davis adds.

Adding low-cost deposits was cited as a top reason for doing an acquisition, according to Bank Director’s 2026 Bank M&A Survey. Seventy percent of respondents said an attractive deposit base was one of the top attributions in a possible takeover target. And 61% said that deposit pricing remained a challenge to profitability.

“I think one lesson banks have learned going through the liquidity crisis is we can’t ignore deposits,” says Joel Pruis, senior director at the consulting firm Cornerstone Advisors. “We have to maintain a focus on our deposit base, and we have to shift around what kind of deposits we have. We should avoid having to go for brokered deposits.”

Of course, there are two numbers that make up the loan-to-deposit ratio. Banks could allow higher cost deposits to run off their balance sheets and that would improve this metric. “But you can’t shrink your way to profitability, so if you want the bank to grow, you have to grow loans,” says Steven Reider, founder and president of the consulting firm Bancography.

Increased lending would be another way to boost this ratio. Commercial and industrial loans, for example, as well as commercial real estate loans, have ticked up from January to April, according to data from the Federal Reserve Bank of St. Louis. But overall, loan demand has been fairly stagnant for banks in recent years. C&I loans, a category that Reider calls a bellwether for banks, remained below year-end 2024 levels at the beginning of 2026, according to an analysis from Bancography. Banks have been hit by a “stasis economy,” he adds.

“We don’t have a lot of control over aggregate demand in our industry. Demand is shaped by larger macro factors,” Reider says. “If the market isn’t fueling increased demand, if the pie isn’t getting bigger, you can play with your rates or product features but that’s about it.”

Experts did say that the industry numbers didn’t tell the entire story. There are some institutions with loan-to-deposit ratios approaching 90% or higher. Overall, each bank board needs to determine its risk appetite for this metric and then work to ensure that management stays within those parameters.

“Certain boards have certain tolerances,” Reider says. “Every institution should have a comfort zone they are targeting. Some are comfortable in the 90% range. Others want a lower one.”

Besides looking at the loan-to-deposit ratio, directors should consider other important metrics, such as the institution’s net interest margin, its cost of funds and how those metrics compare to the bank’s peers, Pruis says. If it looks like the bank is overpaying for deposits, management could allow higher cost certificates of deposit to run off the balance sheet, for instance.

“Is the cost of funds too high?” Pruis says. “Are we getting a yield that is competitive and in line with our peers? Asking if we are paying too much for deposits is a good question.”

*This story has been updated to correct the description of Mercer Capital, a valuation and transaction advisory firm.