Page 28 - BusinessWest May 15, 2023

“If we can raise new deposits, we can keep generating new loans and keep growing our franchise.”
ness due to higher interest rates, low inventory of available hous- es, and the high cost of houses,” he explained. “So we are seeing a couple different forces at play, and that’s a dramatic change com- pared even to last year.”
For this issue and its focus on banking and financial services, BusinessWest looks at these colliding forces and how they are impacting local banks — or not, as the case may be.
Points of Interest
The foundation of the banking system has long been the Feder- al Deposit Insurance Corporation (FDIC), which insures accounts up to $250,000, an amount that provides sufficient protection for most people. McGovern noted that, in today’s banking world, peo- ple with higher assets don’t usually keep their money in one place.
There are situations, however, when FDIC coverage isn’t enough for an account. For example, a small business that keeps its payroll in a savings bank or a consumer who has sold a house or other large transaction can exceed the FDIC limit.
To address those needs, Country Bank and Monson Savings Bank are two of 78 savings banks in Massachusetts that take part in the Depositors Insurance Fund. The DIF is supplemental insur- ance to protect deposited amounts that exceed $250,000. McGov- ern and Moriarty said having the extra protection of the DIF gives everyone peace of mind.
“We made sure to educate our customers that all the depos-
its in Country Bank, even the ones over $250,000, are safe and insured,” McGovern said.
“Because Monson Savings has both FDIC and DIF, it calmed a lot of nerves during the weekend when Silicon Valley Bank failed,” Moriarty added. “We had conversations with some of our custom- ers, but their concerns quickly subsided.”
Having conversations with clients and explaining acronyms like FDIC and DIF has become a somewhat unexpected addition to the workload for area banks, which have been placed in a situ- ation of explaining what has happened at SVB and other institu- tions, and why the fallout has not extended to the smaller commu- nity banks populating this market.
Indeed, those we spoke with pointed out that Silicon Valley Bank’s troubles stemmed from mismanagement and went against the norms of good banking practices. “By contrast, the bankers in our area do things the right way, and the regulators do a good job, too,” Ostrowski said.
Silicon Valley Bank also had a handful of customers with bil- lions of dollars in deposits. Money movements by these few con- tributed to destabilizing the bank. When Silicon Valley failed, it provided an opportunity for McGovern to reassure Country Bank customers.
“We explained that we have $1.3 billion in deposits, and we are in sound financial condition,” she said. “We have a diversified depository clientele, so there was no risk of large outflows of the kind Silicon Valley experienced.”
While local bankers remain mostly unscathed by these highly publicized events, they are keeping their focus on raising deposits and managing the fallout from increases in interest rates.
Ostrowski noted that first-time homebuyers face perhaps the sternest challenge because housing prices are at an all-time high and interest rates are higher than they’ve been in recent years.
“Young people buying their first home have never experienced anything but very low interest rates,” he said, adding that today’s mortgage rates of 6% to 7% aren’t exceedingly high, but when combined with high housing prices, they can keep buyers on the sidelines.
Still, while loan volume might be down, mortgage activity continues.
“People are still moving and buying houses,” McGovern said. “Many are taking out adjustable mortgages thinking that rates may adjust down.”
In recent years, many homeowners refinanced their mortgages to take advantage of the low interest rates. Sullivan pointed out there’s no incentive for people to pursue refinancing today. “The folks who refinanced at 3% a few years ago are obviously not look- ing to do it again at
today’s rates.”
JEFF SULLIVAN
Banks
>>
Continued on page 29
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