SAN FRANCISCO–The recent collapse of four banks and with other midsized banks potentially teetering on collapse will result in a new wave of bank consolidation, according to a new forecast from GlobalData.
“The U.S. is currently grappling with the dual challenges of elevated inflation and regional banking crises, causing concerns among investors,” said Murthy Grandhi, an analyst at GlobalData. “These could potentially trigger a period of consolidation in the banking sector. In March 2023, Silicon Valley Bank was acquired by First Citizens and Signature Bank by Flagstar Bank. Now, First Republic Bank is acquired by JPMorgan Chase.
“On May 1, 2023, First Republic Bank, which had more than $200 billion in total assets, collapsed, following the earlier collapses of Silicon Valley Bank and Signature Bank, which serve as a stark reminder of how quickly the effects of risky decisions taken at one bank may impact the whole financial system.
Sought to ‘Entice’ Customers
“First Republic Bank's failure was attributed to its business model, which focused on catering to high-net-worth individuals and corporations and offering large loans, including jumbo mortgages, using the deposits it received,” Grandhi continued. “With historically low interest rates, the bank hoped to entice customers to expand into more profitable products like wealth management. As a result of this, many of the bank's accounts had deposits exceeding the federally insured $250,000 limit.
“As of Dec. 31, 2022, the bank had uninsured deposits of $119.5 billion accounting for 67.7% of its total deposits. As of March 9, 2023, the bank's total deposits were $173.5 billion. Following the collapse of Silicon Valley Bank on March 10, 2023, the bank experienced unprecedented deposit outflows, reaching $102.7 billion by April 21, 2023, representing a 41% outflow.
“In this scenario, other midsize banks such as Comerica, KeyCorp, PacWest, Western Alliance Bank, and Zions Bank came under pressure with their share prices falling by 26.6%, 21.5%, 67.5%, 30.3%, and 33.5%, respectively, between March 13 and May 4, 2023, and by 53%, 49%, 86%, 68.9%, and 58.9%, respectively, year-to-date,” Grandhi’s statement continued. “Recently, Moody’s also downgraded ratings for Zions Bank, Western Alliance Bank, and Comerica.”
Additional Data
For the fiscal year ended Dec. 31, 2022, Comerica, KeyCorp, PacWest, Western Alliance Bank, and Zions Bank reported uninsured deposits of $45.5 billion, $67.1 billion, $17.8 billion, $29.5 billion, and $38 billion, respectively, accounting for 63.7%, 47.1%, 52.5%, 55%, and 53%, respectively, of their total deposits.
“Other banks with notable high uninsured deposits include East West Bank, Synovus, Bank of Hawaii, and First Horizon Bank, with 66.7%, 51.3%, 51.9%, and 47.7%, respectively, of their total deposits.
“This high percentage of uninsured deposits points to the fragility of these banking companies and may result in a similar situation that was created by Silicon Valley Bank and Signature Bank,” Grandhi concluded.
Feeling the FOMO Fever? CUToday.info Has a Prescription
Are you missing out on the latest news in credit unions? Missing the trends and developments you need to be aware of? We can help. Each morning CUToday.info delivers its daily Fresh Today news update offering the latest headlines and breaking news right to your email, with the easy-to-read headlines format allowing you to click on the stories that interest you most in order to learn more.
And it’s free!
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties, and we will not be contacting you to sell you an extended warranty or sending you any links so you may cash in on an inheritance you didn’t know was coming.
And did we mention it’s free?
Please note and/or make your IT department or email administrator aware the emails will be coming from the domains CUTodayinfo.com and CUTodayinfoReply.com