The U.S. banking industry is experiencing a significant transformation as major banks lose customer deposits while smaller regional banks gain traction. The Federal Deposit Insurance Corporation (FDIC) recently announced the failure of Heartland Tri-State Bank of Elkhart, Kansas, on July 28, with all customer deposits transferred to Dream First Bank, National Association (N.A.), also based in Kansas.
Major banks witness sharp decline in deposits
The four largest banks in the U.S., namely JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, have lost $262 billion due to deposit flight compared to the same period last year, as reported by Yahoo Finance. Despite this sharp decline, CFRA equity analyst Alexander Yokum notes that the data ironically shows that bigger banks are overpowering smaller institutions. JPMorgan’s Q2 presentation recorded a 67% rise in quarterly profits to $14.47 billion in the quarter ended June 30, despite the significant drop in deposits.
Heartland Tri-State Bank’s collapse and the rise of regional banks
The collapse of Heartland Tri-State Bank comes at a time when smaller banks are witnessing a rise in deposits, primarily because they are willing to pay more to attract customers. Yokum’s analysis indicates that regional banks are winning the deposit battle, stating, “The regionals are winning the deposit battle right now because they’re willing to pay the most.”
The FDIC’s decision to transfer Heartland Tri-State Bank’s assets to Dream First Bank, N.A. was deemed 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. Dream First Bank, N.A. agreed to purchase essentially all of the failed bank’s assets, entering into a commercial shared-loss agreement on the loans it purchased. This agreement is projected to maximize recoveries on the assets by keeping them in the private sector and minimize disruptions for loan customers.
The current dynamics in the U.S. banking sector reflect a complex interplay between major banks and regional institutions. While the major banks are weathering the storm of deposit decline, regional banks are capitalizing on the opportunity to attract more customers.
