Bank deposits have surpassed pre-SVB levels, but regional lenders continue to face challenges.

Banks have now regained all deposits lost after the collapse of Silicon Valley Bank, but regional lenders are still facing challenges. The latest Federal Reserve data shows that US banks now hold $17.56 trillion in deposits, surpassing pre-SVB levels for the first time since the California regional lender was seized in March 2023.

During the chaos of last spring, customers withdrew significant amounts of money from their accounts, leading to a low of $17.23 trillion in industry deposits in late April. Banks have managed to recover $337 billion since then.

However, regional banks are struggling as they had to pay a steep price to attract deposits back, impacting their net interest margin. This will be evident in the upcoming earnings reports of many regional banks, highlighting challenges with profit margins and lending.

While larger national institutions like JPMorgan Chase and Bank of America have other revenue sources to rely on, mid-sized banks heavily depend on the spread between loans and deposits. The slower lending growth since March 2023 has added to the pressure on smaller banks.

Despite some signs of deposit costs stabilizing, individual banks like New York Community Bancorp are still offering high rates to secure funding. NYCB’s struggles, including a tenfold increase in fourth-quarter losses and a decline in stock price, have raised concerns about smaller banks’ exposure to commercial real estate weaknesses.

As the banking industry continues to navigate these challenges, the impact of deposit costs on net interest margins remains a key concern for regional lenders.