Online banks thrive as regional banks struggle.


According to recent findings from The Wall Street Journal, there is a notable disparity in deposit trends among banks, with some experiencing growth while others face challenges. Larger institutions like Capital One, Ally Financial, and Goldman Sachs’ Marcus have reported quarterly deposit gains, signaling their resilience in attracting deposits. This trend aligns with Capital One CEO Richard Fairbank’s assertion that the future of banking lies in digital channels.

However, regional lenders such as Truist, Citizens Financial, and PacWest have encountered difficulties, witnessing declines in their deposit numbers. These regional banks are grappling with two significant issues: the aftermath of the previous financial crisis and the impact of rising interest rates. The aftermath of the financial crisis has instilled fear in clients, prompting them to transfer their funds to larger lenders perceived as more stable. Additionally, rising interest rates have led individuals to seek higher yields in alternative investments like money market funds, further exacerbating the challenges faced by regional banks.

Recent data from the Federal Deposit Insurance Corp. (FDIC) revealed a substantial decline in banks’ deposits, totaling $472 billion in the first quarter of 2023. This marks the largest drop in over 40 years, indicating a significant shift in deposit behavior. Furthermore, the St. Louis Fed’s report on bank deposits for April showed a further decrease of nearly $13 billion, suggesting a continuing downward trend.

The analysis by The Wall Street Journal also sheds light on the considerable expenses associated with maintaining traditional brick-and-mortar banks. While the cost of operating a bank in Tampa can amount to $500,000 per year, establishing a mid-sized branch in New York could incur more than double that amount. These high operating costs pose a significant challenge for regional banks, especially amidst declining deposit numbers.

Moreover, the research underscores the role of technology in influencing deposit trends. Internet banking has facilitated deposit runs on Silicon Valley, Signature, and First Republic banks, as clients find it relatively easy to withdraw their funds electronically. This shift towards digital channels has further marginalized traditional banking models, compelling banks to adapt and innovate to remain competitive in the evolving financial landscape.

In summary, the divergent deposit trends observed among banks underscore the growing importance of digital banking channels and the challenges faced by traditional brick-and-mortar institutions. While larger banks like Capital One continue to thrive, regional banks must navigate the complexities of the current financial landscape to sustain their operations and remain relevant in an increasingly digital world.