U.S. banks lost $472 billion in deposits in the first quarter, according to a new quarterly report from the Federal Deposit Insurance Corporation that provides an overview of how the industry is handling the most challenging period since the 2008 financial crisis.
The deposit decline was the largest since the FDIC began collecting quarterly industry data in 1984 and marked the fourth consecutive quarter of industry declines. The regulator monitors the performance of 4,672 commercial banks and savings institutions.
The decrease in deposit rates, 2.5%, was primarily due to activity by insured depositors above the $250,000-per-account threshold set by the FDIC. They withdrew $663 billion, while insurance deposits increased by $255 billion.
The FDIC’s report covers the turmoil that saw a sharp increase in interest rates and the collapse of three banks in a matter of days, including Silicon Valley Bank and Signature Bank on March 10 and March 12.
First Republic later suffered the second largest bank failure in US history on May 1st in the second quarter.
“The more lasting effects of the industry’s response to that stress may not be fully apparent,” FDIC Chairman Martin Grunberg said in a press conference with reporters.
Shares of several regional banks that came under scrutiny during the first-quarter turmoil, including PacWest ( PACW ), Western Alliance ( WEL ), Zion ( Zion ) and Comerica ( CMA ), fell again on Wednesday.
Problem list
The new report shows that other lenders beyond Silicon Valley Bank experienced significant stress in the first quarter. The number of banks on the FDIC’s “troubled list” has grown from four to 43, and assets held by banks on this list have risen to $58 billion.
Banks on the FDIC’s problem list have multiple weaknesses identified by regulators in secret regulatory standards and could be seized and closed unless the problems are resolved quickly. In the year During the industry’s last major crisis, which began in 2008, that list reached hundreds.
What’s clear from the FDIC’s new report is that core interest rates fell in the first quarter as interest rates rose and depositors began moving their money elsewhere.
The influx of costs has forced many banks to start charging more to keep depositors, and those higher costs have eroded the industry’s net interest margin, which measures the difference between what banks earn on loans and what they pay for deposits.
The FDIC reported a decline of 7 basis points to 3.31 percent from the previous quarter as banks’ deposits grew faster than their loans.
Loans rose 32 basis points to 6.08% during the quarter, while deposits rose 43 basis points to 1.42%.
“Dangers Below”
Gross profit rose 17% for all FDIC-insured institutions in the first quarter, but net income would have been flat, excluding accounting gains from institutions that bought two failed banks.
The industry ended the quarter with huge undisclosed losses on securities held by banks. However, this amount, which was $515 billion, was down 16.5% from the previous quarter. These paper losses are not considered income for most banks unless the assets are sold.
Grunberg said the industry remains under pressure on many fronts. “The banking industry continues to face significant downside risks from the effects of inflation, rising market interest rates, sluggish economic growth and geopolitical uncertainty,” he said.
“Credit quality and profitability could be weakened by these risks and result in tighter credit underwriting, reduced credit growth, higher provisioning costs and liquidity constraints,” he said.
“These will be matters of ongoing regulatory oversight by the FDIC.”
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
[ad_2]