YOUR BUSINESS AUTHORITY
Amid this month’s pair of high-profile bank failures in California and New York and the rescue efforts by U.S. regulators, local officials say customers of Missouri’s banks should feel confident in the security of their money and the stability of the state banking industry.
Jackson Hataway, Missouri Bankers Association president, said his organization has heard from many state financial institutions since Santa Clara, California-based SVB Financial Group (Nasdaq: SIVB), dba Silicon Valley Bank, and New York-based Signature Bank collapsed and subsequently were taken over by the federal government. Federal officials pledged to make depositors at both banks whole, including those with more than the $250,000 limit insured by the Federal Deposit Insurance Corp.
Hataway and other local officials said such a scenario playing out in Missouri is unlikely, as both the failed banks were highly concentrated with venture capital and startup funding and lacked diversification. Over 90% of SVB’s and nearly 90% of Signature’s deposits exceeded the FDIC $250,000 insurance cap, which led to the virtual run on the bank, according to media reports.
“The most important message is that that the banking system itself is fundamentally sound,” Hataway said, noting the state has over 200 banks in operation. “We are incredibly well capitalized. Our banks have strong liquidity. If you look at banks in Missouri, we are widely diversified.”
Hataway said the makeup of Missouri’s banks includes consumer, business, agricultural and real estate lending, and deposits reflect that.
“For your average consumer, the FDIC-insured institution is the safest place to have your money,” he said. “The vast majority of consumers don’t exceed the $250,000 threshold and so they have ample room for insurance. There’s plenty of opportunity for people to trust in the soundness of the banking system.”
Local leaders at Great Southern Bancorp Inc. (Nasdaq: GSBC) and Legacy Bank & Trust Co. say their companies were proactive after the bank failures to reach out to large depositors to calm worries they might have about the security of their funds.
“We called our larger customers who would have uninsured balances, and there was essentially no concern at all,” said Joe Turner, Great Southern president and CEO. “The activity we’ve seen over the last 10 days has been pretty normal.”
It was a similar situation for Legacy Bank, said President Brett Magers.
“The Springfield market on the whole is a really safe banking market,” he said, noting there have been relatively few banking problems locally in recent years compared to nationwide – even including during the Great Recession, in which roughly 460 banks failed across the country from 2008-2012, according to FDIC data.
“It’s a good place to bank because of the stability,” Magers said. “There’s a more conservative approach to banking than there was 15 years ago. There’s a lot more capital, and people love liquidity and all the things that make a safe and sound bank. We’re in a lot better position.”
Data published March 16 by the Federal Reserve showed banks borrowed a combined $164.8 billion from two Fed backstop facilities in the week ended March 15. It was a record high, with the previous top amount, $111 billion, reached during the 2008 financial crisis, according to media reports. The Fed’s data didn’t identify the banks who took out the loans. Great Southern and Legacy officials said they were not among the borrowers.
Hataway said for consumers and businesses with bank accounts, the most important thing is for them to understand their banking relationship.
“Know that you have FDIC deposit insurance,” he said. “Most importantly, knowing the bank and the banker you work with are huge components in being able to manage your finances, manage your business finances in a way that makes you not only comfortable with where your finances are but with the people that are managing them for you.”
Keith Noble, president of Commerce Bank in Springfield, said a financial institution’s performance can reflect its management and decision-making.
“Consumers should look for a bank that is well-capitalized, produces good returns, manages risk and has diverse revenue streams,” he said via email. “Commerce has one of the highest Tier 1 risk-based capital ratios among the top 50 publicly traded banks in the country at 14%. Moody’s recently reaffirmed Commerce’s financial strength by assigning the bank an A1 baseline credit assessment.”
Great Southern and Legacy are among banks that offer insured cash sweep, a service that allows customers to secure large deposits while maintaining access to their funds. Any financial institution that offers ICS services are included in a network, and deposits made are handled through a network member of the customer’s choosing and can be spread among multiple banks to be covered by the FDIC limits, according to officials. When placing a large deposit using ICS, funds are placed into a demand deposit account, money market account, or both.
On the rise
In advance of the Federal Reserve’s meeting March 21-22, Turner and Magers declined to predict the agency’s action. The Fed decided to raise interest rates by a quarter point, marking the first increase in 2023, following seven hikes last year as it attempts to tamp down inflation. Amid the recent banking turmoil, some economists predicted the Fed would pause the rate increases, while others expected a half-point boost.
In the latest monthly survey of bank CEOs in rural areas of a 10-state region by Creighton University, roughly 57% recommended a quarter-point increase, 30% favored a half-point hike and 13% advocated no rate change, according to a news release. However, the release noted many survey responses were completed prior to this month’s bank failures.
In a statement following the two-day meeting, the Fed acknowledged the recent national bank strains but added the financial system is stable.
“The U.S. banking system is sound and resilient,” officials with the Fed said in the statement. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain.”
Even as interest rates rise again, Hataway said there likely will be more chatter in the coming months about whether to increase the FDIC insurance coverage limit. The amount moved to $250,000 from $100,000 temporarily during the 2008 financial crisis and was made permanent in 2010.
“You’re going to have a healthy discussion on how to provide certainty and coverage for larger depositors and what’s the best practice for that,” he said. “Is it to have additional insurance options, either through FDIC or partnership with FDIC, or to simply raise the limit? Are there other things we can do in the private ecosystem to provide better options for deposit coverage? That will be an important conversation that will take time. There’s not an easy solution.”
According to media reports, the Mid-Sized Bank Coalition of America asked the FDIC to insure all deposits for the next two years to avoid bank runs. Chair, President and CEO Mariner Kemper of Kansas City-based UMB Financial Corp. (Nasdaq: UMBF) said the move quickly would restore confidence in the banks. UMB is a member of the coalition.
Hataway and Magers both agree the coverage limit topic needs to be explored but take a wait-and-see approach as to what, if any, action should take place. Turner said he wouldn’t have a problem if the limit were raised.
“I trust the regulators to keep an eye on that,” he said.
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