Regional Kansas Bank Collapse Adds to US Banking Industry Woes

Once again, the American banking industry has been rocked by turmoil, and this time, it has struck the heart of the United States - Kansas: Last Friday, Heartland Tri-State Bank, a small regional bank with only four branches, declared bankruptcy due to insolvency and was taken over by the Federal Deposit Insurance Corporation (FDIC).

 

This marks the fifth bank failure in the United States this year, though it is worth noting that Heartland Tri-State Bank was the smallest among them. According to FDIC data, the bank had approximately $139 million in assets and 4 branches at the time of its closure. In comparison, the other banks that collapsed this year, except for Silvergate Bank, which primarily deals with cryptocurrencies, had assets exceeding $100 billion.

 

To protect depositors, FDIC has reached an agreement with another community bank in Kansas, Dream First Bank, which had $480 million in assets as of March 31st, for the acquisition and assumption of Heartland Tri-State Bank's deposits, assets, and liabilities. The four branches of the collapsed bank will reopen as branches of Dream First Bank on Monday. Until then, depositors can still withdraw funds through checks, ATMs, or debit cards.

 

The exact reason for Heartland Tri-State Bank's bankruptcy is not yet fully clear, but the Kansas State Banking Commissioner's office stated in a press release that they determined the bank's insolvency and attributed its bankruptcy.

 

Heartland Tri-State Bank was one of the thousands of small community banks serving various regions across the U.S. Although the scale of Heartland Tri-State Bank's collapse is relatively small and the ripple effects of the event cannot be compared to the impact of previous bank failures,  this incident still raised concerns about the stability of the U.S. banking industry, given that Banc of California and PacWest Bancorp had just recently announced a merger to seek mutual support. The recent banking turmoil in March and April saw PacWest Bancorp avoid bankruptcy but suffer significant stock price declines and severe deposit outflows.

 

In fact, most banks in the country are similar in scale to Heartland Tri-State Bank, and the string of bank failures in the U.S. highlights the catastrophic impact of rising interest rates and poor risk management by financial institutions. Following a "hawkish pause" in June, the Federal Reserve resumed rate hikes last week, raising the federal funds rate target range to 5.25%-5.50% to curb inflation.

 

The latest data from the Federal Reserve shows that as of July 26th, the size of the Bank Term Funding Program (BTFP) launched swiftly after Silicon Valley Bank's bankruptcy, has increased to a record $105.1 billion from $102.9 billion a week ago.

 

At the same time, the U.S. banking industry has experienced a recent trend of deposit outflows. Seasonally adjusted data from the Federal Reserve reveals that commercial bank deposits plunged by $78.7 billion as of July 22nd, reaching the highest level since Silicon Valley Bank's collapse in the previous week.