The bank has now recovered all the deposits it lost after the failure of Silicon Valley Bank. However, this does not solve many of the problems that regional financial institutions still face.
Deposits held by all U.S. banks reached $17.56 trillion in the week ending March 20, according to the latest Federal Reserve data, and regional financial institutions in California It exceeded pre-SVB levels for the first time since the company was foreclosed on.
Customers withdrew large sums of money from their accounts during last spring's turmoil seeking safety and higher yields outside the banking system, pushing industry deposits to an all-time low of $17.23 trillion in late April. . Banks have now recovered $337 billion.
“Our deposits are in a good place, especially after the turmoil of last year,” said Scott Schiefers, an analyst at Piper Sandler Bank.
To be sure, all banks still have a ways to go to recover lost deposits in 2022, as the Federal Reserve begins lowering interest rates to curb inflation. Bank deposits are still down more than $600 billion from their peak in April 2022.
High financing costs
A big problem for local banks is that many of the deposits they collected last year were collected at high costs.
The impact will become clear again in the coming weeks, as many local banks report first-quarter results and discuss margins and lending challenges.
Simply put, small banks got their SVB-era deposits back by paying large sums of money. But this is squeezing a key profit metric known as net interest margin, which small banks cannot afford to shrink.
That's because mid-sized banks rely heavily on the spread they can get between loans and deposits, while large national institutions like JPMorgan Chase (JPM) and Bank of America (BAC) rely heavily on asset management, This is because they can rely on other sources of income such as trading and investments. Banking business.
The higher a small bank pays for deposits, the tighter the critical margin requirements.
In theory, you could make more money by issuing new loans at higher interest rates, but loan growth has fallen since the March 2023 issue and, like deposits, Not recovered.
In fact, lending is currently growing at its slowest pace since the early days of the coronavirus pandemic, according to the Fed's latest data.
“If there's a negative theme in the first quarter, unfortunately, it's loan growth,” Schiefers said.
Big U.S. banks aren't facing the same pressures. They have regained much of their deposits since last spring, but because of the bank's size and perceived safety, it doesn't need to pay as much to attract them.
In fact, data shows that the four largest U.S. banks pay less than half the interest that other banks in the U.S. banking industry pay on certificates of deposit (CDs), and that the banking industry It's only a fraction of the interest paid to account customers. Edited by Apollo. (Disclosure: Apollo Global Management is the parent company of Yahoo Finance.)
At other financial institutions, there are some signs that deposit costs are falling or stabilizing. The average one-year CD interest rate offered by U.S. banks peaked at 2.08% last October, and has since declined slightly to 1.98%, according to Bankrate.
But Greg McBride, chief financial analyst at Bankrate, told Yahoo Finance that “individual banks could still buck that trend.”
One small regional bank that appears to be paying high interest rates to secure critical funding is New York Community Bancorp, said David Chiaverini, managing director at Wedbush Securities. (NYCB).
Chiaverini said NYCB has “raised deposit rates to the most competitive levels in the banking industry.”
As of Wednesday, the bank's website was advertising seven-month CD interest rates of up to 5.50% in some areas.
NYCB has sprung a series of bad surprises for investors since late January, including a 10-fold increase in fourth-quarter losses and disclosures of internal control weaknesses.
NYCB is one of the largest lenders to multifamily housing in New York City, particularly rent-controlled apartments, but its woes have sparked concerns that small banks are being exposed to weaknesses in commercial real estate. .
The company's stock price plummeted, and the company needed a $1 billion injection from a group of investors led by former Treasury Secretary Steve Mnuchin to calm investors.
On March 7, NYCB revealed that it had lost 7% of its deposits in one month. One NYCB official, Alessandro Dinero, told analysts on the same day that “we didn't do anything crazy” or “we didn't offer a 6% CD to make the numbers look good.” he said.
NYCB declined to comment.
“Given all the disruption they've been through, it's not surprising that they had to raise CD rates,” Chiaverini said. “We need to see what impact that has on the net interest margin.”
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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