Mostly business as usual for Minnesota banks despite recent bank failures

Many of Minnesota's largest regional banks attested they haven't seen a noticeable outflow of deposits in the wake of the recent bank runs on Silicon Valley Bank and Signature Bank.

Those prominent bank failures sent shock waves throughout the industry in the past two weeks and rattled investors, leading to a selloff of bank stocks.

In the meantime, Minnesota banks have hustled to reassure customers their deposits are safe with them, pointing out how different they are from the two banks in California and New York that federal regulators seized.

Those talking points include that banks in Minnesota are more well diversified compared with Silicon Valley Bank and Signature Bank, which heavily concentrated in the tech and crypto industries.

Banks here also don't have nearly as high a percentage of uninsured deposits, which means they are less vulnerable to customers rushing to pull out their money in a time of panic, as happened with those two failed banks.

Given the recent turmoil, some customers with large accounts have reportedly moved some of their funds out of regional banks and into the nation's largest banks, since the Federal Deposit Insurance Corp. only insures deposits up to $250,000.

"The idea is that they're 'too big to fail,'" said Andrew Winton, a banking professor at the University of Minnesota. "They're also better regulated."

But Huntington Bank and Bremer Bank are among those that said they haven't seen any noticeable shift in customer accounts.

"Our deposits last week were flat to what they had been the prior week and the week before that on a comparable day," said Stephen Steinour, CEO of Ohio-based Huntington, which is Minnesota's sixth-largest bank after it purchased TCF Financial in 2021.

When asked if it had seen an inflow or outflow of deposits, St. Paul-based Bremer, the state's fourth-largest bank, said in an email: "We have not seen anything unusual, all normal business activity."

Meanwhile, U.S. Bancorp, the largest bank in Minnesota and the fifth largest in the U.S., confirmed last week it had seen an uptick in deposits in the wake of Silicon Valley Bank's failure. A company spokesman did not quantify how much.

In a research note this week, David George, an analyst with Baird, wrote U.S. Bancorp "and other super regionals will likely be net beneficiaries from a deposit funding perspective to the extent larger depositors want to mitigate their funding risk at smaller regionals."

The Minneapolis-based bank was one of the 11 big banks that came together with a $30 billion rescue plan last week to shore up San Francisco-based First Republic Bank, which had been struggling as some customers pulled out their money for fear it could be the next to collapse. U.S. Bancorp contributed $1 billion in uninsured deposits as part of that effort.

On Wednesday, Federal Reserve Chair Jerome Powell said deposit flows in the banking system have stabilized in the past week, while he emphasized the banking system is "sound" and "resilient."

Joe Witt, president of the Minnesota Bankers Association, said many community banks have shared similar stories of rushing the weekend after the collapse of Silicon Valley Bank so they could handle customer inquiries on Monday morning.

"They were expecting to be inundated with questions and concerns," he said. "And basically nothing happened, which was great news."

Scott Coleman, a Minneapolis-based partner in Ballard Spahr's banking and financial services team, said he's talked to several clients — mostly community banks in the Upper Midwest — which have actually seen a small influx of deposits in the past two weeks.

"It's likely that people are just saying, 'OK, I've got one banking relationship, maybe I need two or three banking relationships' as they're seeking to maximize their deposit coverage by moving funds to multiple institutions," he said.

Huntington's Steinour said the banks that have run into recent trouble took on "extraordinary risk" by having a disproportionate share of large, uninsured deposits.

A S&P Global Market Intelligence analysis shows 90% or more of deposits at Silicon Valley Bank and Signature Bank were uninsured.

Many banks in Minnesota note they have a much lower percentage of uninsured deposits: 55% for U.S. Bancorp, 38% for St. Louis Park-based Bridgewater Bank and 32% for Huntington.

Bremer said only about a third of its deposits are uninsured or do not require some sort of collateral. It added it's been engaging with customers to emphasize its diversified base of deposits, "ample access to liquidity" and "strong capital position."

In a document posted to its website, U.S. Bank nodded to similar points of strength and stability. It also pointed out it has repeatedly passed the Federal Reserve's stress tests, demonstrating its ability to weather difficult economic times.

In the meantime, bank stocks rallied a bit earlier this week but still remain depressed. In the past month, U.S. Bancorp's shares have plummeted 26%, Bridgewater's are down 25% and Huntington's have dropped 30%.

Still, Steinour is cautiously optimistic things will start to normalize. In many ways, he said, they already have.

"Things are really settling down for us," he added, noting he's spent the past week or so making previously scheduled visits to markets, including the Twin Cities. "Every day has been better than the last."