Page 27 - BusinessWest May 15, 2023

Checks and Balances
Despite Deposit, Rate Challenges, Banks Remain on Solid Footing
BY MARK MORRIS
“There’s a rate battle these days because, with higher interest rates, we have
to offer more generous rates
on CDs to keep deposits here and attract new funds.”
MARY MCGOVERN
About a year into the pandemic, banks found themselves in a strange position.
When the federal government pumped stimulus and Paycheck Protection Program (PPP) money into the economy to help consumers and businesses regain their footing, it created an unprecedented glut of deposits.
In normal times, banks would have celebrated the excess in the form of making more loans — and generating more revenue — but these were different times. Consumers and businesses kept their money in banks to take advantage of FDIC protection while they fig- ured out their next moves.
Despite record-low interest rates, uncertainty from the pandemic also resulted in reduced loan activity. When deposits sit idle, banks don’t generate revenue — or profits. As one executive noted at the time, all these deposits became a burden, a concept that went against everything they were taught about banking.
Another executive said simply, “back then, cash was a four-letter word.”
Things began to change by the third and fourth quarter of last year as excess deposits began flowing out. Some people withdrew money to pay for increases in daily living expenses, while other depositors sought to move their money into financial products that pay higher rates than banks.
As a result, what was once a problem of too much liquidity became a matter of banks competing for deposits.
“There’s a rate battle these days because, with higher interest rates, we have to offer more generous rates on CDs to keep depos- its here and attract new funds,” said Mary McGovern, executive vice
president and chief financial and operating officer for Country Bank. Jeff Sullivan, president and CEO of New Valley Bank, added that,
with excess liquidity a thing of the past, his staff is working harder to bring in deposits because demand for loans remains strong for his four-year-old institution.
“If we can raise new deposits, we can keep generating new loans and keep growing our franchise,” he noted.
These forces have been compounded by recent events in the banking world, which was rocked in March when Silicon Valley Bank (SVB) failed and was shut down by the state of California. News like that can create panic in bank customers everywhere. The bankers BusinessWest spoke with all said they communicated with their respective customers early and often to allay any fears.
“When I saw the news about Silicon Valley Bank, I sent emails and text blasts to our members to let them know everything
was safe, secure, and that we are well-capitalized,” said Michael Ostrowski, president and CEO of Arrha Credit Union. He also cred- ited the Massachusetts Division of Banks for calling every institu- tion to make sure there were no problems.
Sullivan agreed the industry did a good job preventing a bigger problem.
“We certainly made phone calls with our customers and commu- nicated as much as we could,” he said. “As a result, we did not see any outflows caused by people worried about the system.”
Dan Moriarty, president and CEO of Monson Savings Bank, said the deposit spend-down, along with higher interest rates for loans, particularly mortgages, have caused a paradigm shift.
“Most banks have seen a drop in their residential mortgage busi-
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