Are America’s regional banks headed for the worst?


More people America’s paying more attention than ever to regional banks. But their balance-sheet position is difficult to ascertain. Recent data from the Federal Financial Institutions Examination Council, a regulator, offer a glimpse. Our analysis shows that many regional banks are grappling with flighty deposits, interest rate mismatches and costly borrowings. Even if no one is about to fall, the outlook is grim.

Start with Deposit. Before the uproar in March, savers were moving money to higher-yielding money-market funds. The collapse of Silicon Valley Bank (svb) accelerated the trend. Accounts with more than the $250,000 federal-insurance limit declined by about 5% across the banking system — and by more than 11% at medium-sized lenders. At PacWest, a California-based institution, total deposits decreased by 17% and the uninsured amount decreased by more than half.

Many banks are still sitting on billions in unrealized losses. The data shows that US banks have collectively lost more than $500 billion on their securities portfolios. Charles Schwab, a broker that has seen its share price fall by two-fifths this year, has posted more than $21bn in paper losses through its banking subsidiaries. When svb fell, the unrealized loss on its securities was 100% of the core equity capital (see chart).

Outstanding lending by US banks reached $1.3 trillion in the most recent quarter, up 40% from the previous quarter. Lending to large institutions grew by 26%; On medium ones, it more than doubled. Schwab acquired the Federal Home Loan Banks (fhlb), up from $12bn in the last three months. KeyBank, an Ohio-based lender, borrowed $19bn in the short term fhlb Debt, above $11bn. Such loans are available at today’s high interest rates. Banks that rely on them can survive the crisis. But they will probably see their profits take a hit.

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