America’s biggest banks are witnessing a contraction of customer deposits as another regional bank is forced to close its doors.
The Federal Deposit Insurance Corporation (FDIC) Heartland Tri-State Bank of Elkhart, Kansas, failed on July 28th.
All customer deposits have been transferred to Dream First Bank, National Association (N.A.), also based in Kansas.
The collapse comes as a new report reveals the amount of cash that customers have taken out of the four largest banks in the US.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have lost $262 billion due to deposit flight compared to the same period last year, reports Yahoo Finance.
Although big banks are weathering a sharp deposit decline, CFRA equity analyst Alexander Yokum says the data ironically shows that the bigger banks are overpowering the smaller institutions.
He says that deposits into smaller banks are rising simply because they are being forced to pay more for their customers.
“The regionals are winning the deposit battle right now because they’re willing to pay the most.”
Yokum’s analysis is supported by JPMorgan’s impressive Q2 presentation, which recorded a 67% rise in quarterly profits to $14.47 billion in the quarter ended June 30th, despite the large drop in deposits.
As for Heartland Tri-State Bank, the FDIC that transferring over the bank’s assets to a new institution was more cost efficient than using the FDIC’s insurance fund to compensate customers.
“As of March 31, 2023, Heartland Tri-State Bank had approximately $139 million in total assets and $130 million in total deposits. In addition to assuming all of the deposits, Dream First Bank, National Association, agreed to purchase essentially all of the failed bank’s assets.
The FDIC and Dream First Bank, National Association, are also entering into a commercial shared-loss agreement on the loans it purchased of the former Heartland Tri-State Bank. The FDIC as receiver and Dream First Bank, National Association, will share in the losses and potential recoveries on the loans covered by the shared-loss agreement, which is projected to maximize recoveries on the assets by keeping them in the private sector.
The agreement is also expected to minimize disruptions for loan customers.”
