The AI ‘scare trade’ is finally hitting banks. Bargain hunters should take note.

Deposits have long been banks' cheapest source of funding. When rates were near zero, customers had little reason to move idle cash, and that inertia supported wide net interest margins. In a higher-rate era, the same behavior became unusually profitable: checking balances paying little or nothing still cost banks far less than wholesale funding or rate-sensitive savings products.

The emerging "scare trade" reflects concern that this dynamic may be shifting. If depositors grow more willing to chase yield — or if competition for deposits intensifies — funding costs could rise and compress margins that have flattered bank earnings. The summary does not specify which institutions or markets are affected, so the scope remains unclear.

For observers, the key question is whether deposit behavior is genuinely changing or whether the anxiety is outpacing the data. Watch deposit costs, net interest margins, and any signs of customers migrating toward higher-yield accounts in coming quarters. Those indicators, not headlines alone, will show whether this is a lasting repricing of bank funding or a passing mood.