Bank deposits declined in the past quarter for regional banks—but not for the reason one would think.
- Quarterly earnings reports for regional banks began releasing on Thursday, and the majority of them are reporting that deposits are declining, Axios reports.
- Consumers are shifting deposits away from smaller banks toward larger banks in the aftermath of the collapse of Silicon Valley Bank, Silvergate Bank, and Signature Bank, while investors shifted funds into safer investments.
- Dallas-based Comerica noted a 9% drop in deposits without a significant loss in customers as depositors seek more resilient options for safekeeping.
- However, regional banks are arguing that the decline in deposits has more to do with more competitive returns that other banks can provide retail depositors.
Why It’s Important
Bankers and depositors experienced two weeks of volatility and instability following the second and third largest bank collapses in U.S. history, facilitated by the Fed’s monetary tightening policies devaluing the bond market and sparking liquidity crises at multiple banks, subsequently sparking the largest bank runs and bailouts since the 2008 financial crisis.
The decline in deposits does not necessarily reflect the same problems that March’s bank runs did, as it is not believed that the majority of regional banks are seeing a confidence crisis, Axios notes. Regional banks are instead facing greater competition among retail depositors.
The tightening economy has certainly spooked some depositors—enough that millions of dollars shifted from regional banks to national banks in the aftermath of the crash—but higher competition among high-yield return investments and accounts is making regional banks less competitive.
“Deposit outflows during mid-March were primarily related to corporate and commercial clients who chose to diversify the money market mutual funds and in some cases across multiple banks,” says Truist CEO William H. Rogers.