While Regional Banks Struggle, Deposits At Online Banks Are Increasing

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According to The Wall Street Journal, these banks have taken in more deposits than they have lost this year, although regional lenders like Truist, Citizens Financial, and PacWest have seen their deposit numbers fall.

Meanwhile, banks including Capital One, Ally Financial, and Goldman Sachs’ Marcus reported increases in quarterly deposits.

“The future of everything in banking is digital,” Capital One CEO Richard Fairbank declared on an earnings call in April.

Regional banks are struggling with two difficulties, according to the paper: the last financial crisis, which scared consumers into shifting their money to larger lenders, and rising interest rates, which drive individuals to move money to products like money market funds for better payouts.

The Federal Deposit Insurance Corp. (FDIC) stated this month that banks’ deposits fell by $472 billion in the first quarter of 2023, the largest drop in over 40 years of record collection.

Furthermore, the St. Louis Fed reported on Friday (June 2) that total bank deposits decreased nearly $13 billion in April, “which would push the decline even further out than the FDIC data.”

The WSJ analysis mentioned the high expense of maintaining a traditional bank. A bank in Tampa can cost up to $500,000 per year to operate, but a midsized branch in New York will cost more than double that amount.

At the same time, technology, according to the research, contributed to the deposit runs on Silicon Valley, Signature, and First Republic banks, since internet banking made it relatively easy for clients to withdraw their money.