Deposit Concentration Risk

Deposit concentration risk is the risk that a bank's deposits come from too few sources, so that the departure of a handful of customers, or of customers who tend to act together, would drain a large share of its funding. Concentration can be by individual depositor, by industry, by geography or by channel, such as deposits gathered through one fintech partner or deposit broker. It is a specific form of concentration risk and part of liquidity risk. The risk is greater when the balances are large uninsured deposits from businesses or investors who are well informed and quick to move, as the bank failures in the United States in March 2023 showed. Banks monitor it through limits on their largest depositors, stress tests and funding plans, and supervisors review it alongside the broader funding concentration of the balance sheet. Also see wholesale deposit.