Bank of America’s lending is outpacing deposits, raising the question of what funding costs will do

Bank of America’s latest numbers point to a familiar tension in banking, lending growth that can move faster than deposit growth. In a market recap published by Yahoo Finance, the bank’s second-quarter average loans were reported up 8% year over year, while deposits were up 2% over the same period. The gap matters because deposits are generally the bank’s cheapest and most stable source of funding.

The article frames the real issue as not simply whether deposits are growing, but how the mix affects funding costs. When loan growth runs ahead of deposit growth, banks often have to meet the difference through other liabilities, such as wholesale funding. Those alternatives can be more expensive, which can pressure net interest income depending on market conditions.

The focus on the “deposit franchise” reflects how much banks depend on their ability to attract and retain deposits. Deposit franchise strength is typically assessed by deposit growth, the stability of balances, and the cost of those deposits. A deposit base that grows more slowly than assets can still be useful, but it can become less valuable if the bank must raise funds at higher rates elsewhere.

Bank of America did not provide additional detail in the Yahoo Finance post beyond the reported growth rates in average loans and deposits. The market summary also does not disclose the related funding costs, such as changes in interest expense on deposits and other borrowings, within the information provided here. That leaves an important part of the story open: whether the bank’s incremental funding costs offset gains from faster lending.

In general, the banking sector has been navigating a wider range of funding dynamics as interest rates have shifted and as depositors have compared yields across savings, money market accounts, and bank term products. Against that backdrop, deposit growth that lags lending can announcement either competitive pressure in attracting balances or a strategic choice to grow loans while maintaining a different deposit strategy.

For Bank of America, the immediate question becomes whether the incremental funding needed to support loan growth is coming from cheaper sources, such as steady deposits, or from funding that carries higher rates. Without figures from the bank on the cost of funds, the Yahoo Finance framing suggests investors should pay attention to what happens to net interest margin and interest expense as loan growth accelerates.

Even so, the reported 8% year-over-year increase in average loans alongside a 2% increase in deposits indicates that the bank’s balance sheet is expanding faster on the lending side than on the deposit side. In a loan-growth environment, the bank’s ability to keep deposits relatively sticky, even if growing slower, can still help limit cost increases. The more that deposit growth continues to trail lending, the more investors are likely to scrutinize funding cost trends.

What to watch next is whether Bank of America’s subsequent disclosures quantify the funding mix and the cost of deposits and other borrowings, and whether that translates into changes in earnings metrics tied to interest income. If lending continues to outpace deposits and funding costs rise faster than management expects, the deposit franchise could become a bigger driver of near-term performance. If funding costs stay contained, the lending growth may remain supportive even with deposits lagging.