Banks try to calm worried depositors
From the July 25, 2008 edition, Atlanta Business Chronicle, Page 1A
By Joe Rauch
After watching depositors' dollars pour into their vaults in recent years, bankers are now working to keep them from flowing back out.
Federal regulators on July 11 shut down California-based thrift IndyMac Bank after a massive run on its deposits, the second-largest bank failure in U.S. history.
More bad news has followed. Wachovia Corp. on July 22 reported a second-quarter loss of $8.9 billion and said it will cut 10,750 jobs. Then on July 23, Washington Mutual Inc. reported a second-quarter loss of $3.3 billion.
As a result, local bankers say, consumers -- for the first time in decades -- are worried the next bank to fail could be theirs, taking their deposits with it.
The shift is a far cry from the recent bank boom, when freshly opened Atlanta banks courted customers' deposits with ever-higher interest rates, fueling unbridled loan growth. Customers, in turn, eagerly jumped from bank to bank, chasing the best rate.
Now, those conversations have shifted to educating customers about bank operations, deposit insurance and options for additional insurance.
"It reminds me a bit like homeowners insurance," said Kendall Alley, Wachovia's Atlanta market president. "I don't know the specifics of my policy until something happens to my house and I know I need it. That's what we're seeing from customers right now."
Wachovia has the largest branch network in the metro area, with 215 locations.
"I think people are paying attention to the details, and we're trying to be proactive with customers," said Gary Dowell, RBC Bank's Georgia president.
For most customers, concerns are needless, bankers and regulators said. Deposits up to $100,000 per account -- or $250,000 for certain retirement accounts -- are insured entirely.
In Georgia, the bulk of the state's deposits are insured, according to Federal Deposit Insurance Corp. data.
As of March 31, the most recent data available, $200 billion was deposited in Georgia-headquartered banks, of which $143 billion was fully insured. The FDIC has never failed to pay insured deposits after a bank failure, dating back to the early 1930s.
The insurance cap hasn't changed since 1980, and would require an act of Congress to do so, according to FDIC spokesman David Barr.
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Billions Uninsured |
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Total Insured |
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Note: SunTrust, United Community and Fidelity have out-of-state deposits thatmay count towards Georgia totals, because of bank accounting rules. The list only accounts for separately chartered banks. Synovus Financial Corp., a holding company that operates several subsidiary banks in the state, including Bank of North Georgia, is counted as a single entity. |
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Source: Federal Deposit Insurance Corp. |
In 2006, Congress approved increasing insurance levels on retirement accounts to $250,000, and gave the deposit insurer the ability to increase insurance levels to match inflation. That rule change does not take affect until 2011, however.
Local banks are having two parallel conversation with customers, bankers said. One on hand, individual customers are asking for additional information about FDIC deposit insurance, how it works and what account options they may have to maximize their coverage.
For business customers -- who can quickly exceed the $100,000 insurance limit and for whom a bank failure can cripple their operations -- the discussions center on the bank's capital, liquidity and other financial metrics to gauge its long-term health, along with ways to diversify a company's deposit holdings.
"The questions and interest we've seen from small to midsize business -- those who do less than $50 million in sales annually -- are probably 50-fold higher than our bigger corporate clients," said Alley said. "But those are likely clients that aren't as diversified in their deposit holdings."
The concerns are rewarding the market's larger banks.
Alley said despite Wachovia's well-chronicled woes nationwide, it continues to add deposits locally.
Alley said the bank's commercial bankers have spent the last two weeks meeting with large local clients to reassure them of the bank's operating plan going forward.
Some bankers are trying to educate customers about the differences between troubled and healthy banks.
"We're trying to show customers that every bank should not be lumped in together," said Billy Lovett, Midtown-based One Georgia Bank's director of marketing.
One Georgia has $132 million in total deposits.
Others are preparing in case customers' unease does lead to a rash of deposit withdrawals.
Rex Schuette, United Community Banks' chief financial officer, said the bank recognized early this year the need for liquidity to cover customer withdrawals if the market soured.
Since then, United Community increased its deposit base by attracting new customers, and shedding so-called brokered deposits.
"We want to have capacity, in case something like that does happen in Atlanta and it shakes consumer confidence somewhat," said Schuette.
Gene Kirby, SunTrust Banks Inc.'s executive vice president for retail, said the bank was able to grow deposits in second-quarter 2008, despite refusing to offer the highest interest rates on accounts. The bank added $3.8 billion in deposits, a 4 percent increase from second-quarter 2007. "The vast majority of our customers are attracted by our branch network, products and the stability of our organization. We think we're in a position of strength," Kirby said.
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Law of money |
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The FDIC insures deposits nationwide for a variety of consumer and commercial bank accounts. The FDIC's regulations on deposit insurance can only change by act of Congress, but the agency insures:
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Source: Federal Deposit Insurance Corp. |
Reach Rauch at jrauch@bizjournals.com.
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