Ingrams July 2023

Deposit figures show that high-profile failures are no indication that banks are on shaky ground. And that’s as true in this region as anywhere. by Dennis Boone Stability KC Can Bank On

As scare headlines go, this one was quite fetching: “U.S. Bank Deposits Down $1 Trillion Since April 2022.” Give them full marks for accuracy; that declaration was entirely true. But headlines have never been big on con text. Upon further review, as they might say in the NFL, while deposits were down that much between April of last year and midyear 2023, it’s worth not ing that the starting point for that mea surement was an all-time high for bank deposits in the U.S. Dig a little deeper, and you’ll see that deposits not only were not deplet ed within the nation’s banking system, they were, in fact, up more than 10 per cent year-over-year by the end of 2022. That’s hardly a run on the Bailey Savings & Loan. And it’s worth noting that investors didn’t yank those dollars to eat them: Much of that withdrawal from tradi tional bank-deposit instruments was reallocated in pursuit of greater yield. This year’s 17 percent pop in equities markets had the effect of dragging a lot of dollars off of the sidelines. Not just nationally, either. Banks in the Kansas City region didn’t rise to the national averages, but they still realized an increase of 4.73 percent in combined deposits, with nearly $4 billion more pouring in. The $85.84 billion held by 120 banks in the region as of the start of this year also represented an all-time high. Much was made this spring of the potential impact that might follow the collapse of some national leviathans, including Silicon Valley Bank in Cal ifornia and Signature Bank in New York, with some pundits declaring that investors would lose confidence in the nation’s banking system. Those banks, however, had unusual business models and some shortcom

Context Matters: Yes, depositors withdrew $1 trillion from U.S. banks since April 2022, but it was hardly the run that George Bailey had to stave off in “It’s a Wonderful Life.” In fact, deposits nation wide, and in Kansas City, rose in 2022.

ings with regulatory and best practices standards. If you ask regional bankers, there’s little concern that depositors are taking money out to stuff under their mattresses. “Really, the deposit runoff began ar- ound March of this year; the big thing to look at now will be when banks start reporting their second-quarter results to the FDIC,” says Brent Giles, recently named CEO for Hawthorn Bank. “Did we see deposit inflows or outflows? I think most banks are doing what it takes to maintain deposit levels.” That means following the lead of the Fed, which has raised rates by nearly 5 percentage points since the inflation alarms began ringing in early 2022. People with insured accounts of less than $250,000 had been in investor agony for years in a near-zero-rate envi ronment; today, many banks are indeed attempting to keep those holdings in place with interest rates approaching—

and in some cases, above—5 percent. “Now, banks are offering very attrac tive deposit rates to maintain liquidity,” Giles says. “For a period, banks were offering rates significantly below the two-year treasury yield. A lot of inves tors left the system chasing yields on the 2-year,” which has retreated from a 2022 high of 3.03 percent and stood at 2.74 in mid-July. By raising their own rates, Giles said, banks “have been able to attract those deposits back.” Somewhat more tempered in his as sessment is Ernie Goss, whose Omaha research firm teams with Creighton Uni versity to poll bankers in a 10-state region to track sentiment on economic trends. That study’s checking deposit index plummeted to a record low in April by a considerable margin for checking accounts but only slightly for CDs and other savings instruments. “The deposit indices indicate the change in deposits, not the level of deposits,” Goss noted.

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July 2023

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