NEW YORK–Another report has found that smaller banks are being forced to “pay up to keep their deposits.”
Main Street banks such as Citizens Financial Group Inc. and First Horizon Corp. said in recent first-quarter earnings reports they are having a tougher time hanging onto customer money in a world where the Federal Reserve has aggressively raised interest rates, the Wall Street Journal said.
As CUToday.info has been reporting and as credit unions have also been practicing, to keep those depositors around many banks are now paying more on savings accounts and turning to products like certificates of deposit. But that hasn’t stopped the outflows.
For example, in Utah Zions Bancorp reported deposits at the end of March were down 3% from the previous quarter and 16% from a year ago. “Zions is one of the banks whose stock price has been hard hit since the banking crisis that unfolded last month,” the Journal noted.
Balances Above Prepandemic Levels
The bank noted in an earnings release, however, that its deposits were still higher than prepandemic levels. But many of its larger customers have yanked deposits, with more than two-thirds of the declines “related to accounts with balances greater than $10 million,” according to the report.
The bank said its borrowings rose sharply as it faced the deposit declines on top of a slight uptick in loan growth. Its borrowed funds were up by $11.5 billion from the year-ago quarter, primarily driven by secured borrowings from the Federal Home Loan Banks, the Journal reported.
“The fundamentally solid results that we and many other banks produced in the first quarter were overshadowed by concerns about liquidity and capital strength in the wake of two prominent bank failures in mid-March,” CEO Harris Simmons was quoted as saying.
No Longer Satisfied
The report further noted that customers who used to be satisfied keeping their money in accounts that paid no interest decided they no longer are.
“The turmoil itself is going to be most challenging for the small to midsize banks,” U.S. Bancorp Chief Financial Officer Terry Dolan told the Wall Street Journal. “They tend to be organizations that are less diverse or concentrated in particular areas.”
Another major regional bank, Citizens, told the Wall Street Journal its deposits “were broadly stable” throughout the turbulence last month. But total deposits at the bank slipped from the previous quarter, driven by a 10% decline in noninterest-bearing accounts.
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