Banking Practice Showdown 2025 – Vault into Your Future Success!

The correct answer highlights that a shift from core deposits to non-core deposits generally reduces net interest income. Core deposits are stable and typically provide a lower interest rate cost to banks. They consist mainly of checking accounts and savings accounts, which tend to have a more consistent balance and lower volatility, allowing banks to maintain lower funding costs.

Non-core deposits, such as brokered deposits or negotiable certificates of deposit, often come with higher interest rates and less stability. When a bank relies more on these types of funding, it faces increased interest expenses. This shift can lead to a mismatch between the cost of these deposits and the return on earning assets, resulting in reduced net interest income. Furthermore, non-core deposits might lead to less predictable customer behavior, which can further impact the bank's ability to effectively manage liquidity and interest margins.

In contrast, the other options suggest outcomes that may not consistently occur with such a shift in deposits. For instance, an increase in fixed rate assets or rate-sensitive assets does not necessarily follow; this aspect would depend on the bank's strategies and market conditions rather than being a direct outcome of the type of deposits. Additionally, the assertion that this shift would lead to an increase in non-earning assets is not as clear-cut since banks