A regional bank, Heartland Tri-State Bank of Elkhart, Kansas, closed down on July 28th, causing a decrease in customer deposits for America’s largest banks.

The Federal Deposit Insurance Corporation (FDIC) reports that all customer deposits have now been transferred to Dream First Bank, National Association (N.A.), another bank based in Kansas.

Decline in the amount of cash

At the same time, a recent report has shown a decline in the amount of cash being held by customers in the four largest banks in the US.

According to a report by Yahoo Finance, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have experienced a $262 billion decrease in deposits compared to last year.

Despite this decline, larger banks seem to be dominating over smaller institutions, as they are willing to pay more for their customers. CFRA equity analyst Alexander Yokum suggests that smaller banks are receiving more deposits because they are being forced to offer higher rates.

JPMorgan’s Q2 presentation confirms this analysis, showing a 67% rise in profits to $14.47 billion for the quarter that ended on June 30th, despite the drop in deposits.

The FDIC also states that it was more cost-effective to transfer Heartland Tri-State Bank’s assets to a new institution, as opposed to using the FDIC insurance fund to compensate customers.

“As of March 31, 2023, Heartland Tri-State Bank had approximately $139 million in total assets and $130 million in total deposits,” according to the notes.

The same notes also made sure to reveal that “In addition to assuming all of the deposits, Dream First Bank, National Association, agreed to purchase essentially all of the failed bank’s assets.”

Dream First Bank, National Association, and the FDIC have formed a commercial shared-loss agreement regarding the loans purchased from the now-defunct Heartland Tri-State Bank.

Under this agreement, both parties will share in any losses or potential recoveries on the loans.

This arrangement is intended to keep the assets in the private sector, which is projected to maximize recoveries. Furthermore, the agreement will minimize disruptions for loan customers.

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