A.M. Best Special Report: U.S. Banks' Reliance on Large CDs Outpaced Other Deposits in the First Quarter of 2006.

OLDWICK, N.J. -- Recently, U.S. banks have become increasingly dependent upon more volatile liabilities, such as large certificates of deposits (CDs with balances of more than $100,000) to meet their overall funding needs, as the competition among financial institutions to develop funding sources has intensified. Since the Federal Reserve began raising short-term interest rates in June 2004, large CDs, as a percentage of total deposits, have been rising steadily, from 14.8% as of June 30, 2004 to 18.0% as of March 31, 2006. During that time, total deposits also grew from $6.29 trillion to $7.32 trillion, representing an increase of $1.03 trillion, or 16.4%, according to a special report issued by A.M. Best Co.

In addition, in the year-ended March 31, 2006 total deposits reached $7.3 trillion, an increase of $610 billion, or 9.1%. Although the growth rate for total deposits was solid, large CDs grew at an even faster rate, surpassing $1.3 trillion, which represented an increase of $216.6 billion, or 19.7%. Given the recent volatility in equity markets and the more attractive yields available on deposit accounts, annual deposit growth in 2004 and 2005 has accelerated from 2002 and 2003 levels.

Best's Banking Center provides online access to data, special reports, analytical methodologies and news on the U.S. banking industry. For a complete overview, please visit www.ambest.com/banks.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.