Page 18 - BusinessWest July 24, 2023

Dan Moriarty says many ominous signs point toward a recession, which could bring more challenges for banks and their customers.
Banks
Continued on page 16
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$130 million in deposits,” he said, cit- ing a combination of concern fueled by social media and the ease with which consumers can now move money electronically as the dominant causes. “There was a huge move to larger insti- tutions out of fear.”
Overall, there was less fallout in this region, said O’Connor, another of those banking leaders who was the phone
to customers assuring them that their assets were safe, adding that the failure
“I don’t think there’s anyone who projected that
rates would go up 5% in seven months — that’s unprecedented territory, and that’s what is causing the squeeze.”
of SVB and a few other banks this spring, and the resulting fallout from depositors, were just one of the many speedbumps encountered by banks in 2023.
Indeed, this was a year the indus- try knew would be challenging — or more challenging — going in, especial- ly with regard to rising interest rates. Just not this challenging.
“Just a year ago, rates were quite low, and everyone thought rates were going up a point and a half, maybe 2%, something in that ballpark — that was the consensus prior to August of last year, when Chairman [Jerome] Powell said, ‘no, we’re really going
to stomp on the brakes,’” Sullivan said. “Up to that point, we thought that rates would go up slightly, and
we were modeling our projections on that; I don’t think there’s anyone who projected that rates would go up 5% in seven months — that’s unprecedent- ed territory, and that’s what is causing the squeeze.”
O’Connor agreed. A year or so, banks were paying maybe a half-per- cent interest on deposits, he recalled, adding that most new CD products being advertised are featuring rates in the 4.5% to 4.9% range on the higher end, while rates on money-market accounts are coming up as well, num- bers that reflect both the need to gar- ner new deposits and growing compe- tion for those assets.
“You have competition from other banks, internet-only banks, the securi- ty brokers — everyone is clamoring for those deposits,” O’Connor said. “And that certainly puts pressure on all banks, including community banks.”
Institutions are adjusting to this landscape, said those we spoke with, but it’s going to take some time to fully adjust because the rate hikes came so quickly and profoundly.
competitors, and they were doing the same thing.”
Such discussions were necessary, he said, because even though those deposits were becoming far more bur- densome, cost-wise, as he noted earlier, all banks need them to have the money to grow their loans, and consumers were getting skittish.
“The weekend that SVB failed, the four largest banks in the country took in roughly $140 billion in new deposits, and community banks, in general, lost
18 JULY 24, 2023
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