Yesterday, I was talking to a friend who is an asst. manager at a California-based bank and she told me something that fit in well with the rising credit environment and housing bubble. Her specific branch was down over $13 million in total deposits since January. That branch has somewhere between $100-200 million in deposits total. She asked her manager and her manager said the drop in deposits was most likely by customers who needed to take out money to pay for loans and mortgages. The rising rates are causing those with HELOCs and resetting mortgages to raid their liquid assets to pay them off or pay down debt. Once they run out of saved money, I guess they will likely go into default. This might take a few months or more, depending on their asset level.
Unrelated, I just heard from another friend yesterday who is leaving the country in two months for a job overseas who is really stressed and depressed because he can’t sell his condo he purchased a while back. It is really causing him to be less productive because he isn’t sure if he will be able to sell it for a price that can pay off the mortgage and selling cost. I hate to see such desperation from a friend, but some will definitely lose as the market recorrects to more affordable levels.
I would offer another perspective if I may with regard to the bank deposits – it is that the basic reason they (the bank) may have seen deposit outflow is that the rates that are available from alternative institutions have increased handsomely. The newspaper has carried several ads of late with credit unions and the like offering rates in the mid 5’s for something like 7-12 month cds.
The other point I would speculate on is that you would normally see deposit weakness around tax time – which in California is compounded by both income taxes and the second installment of property taxes.
studenteconomist, are these savings withdrawals from CD accounts, or are these people closing their savings and checking accounts? What is the 6 month CD rate at that bank, compared to others? Does she think it is due to higher CD rates elsewhere? Banks know how their rates compare to others. I think a 5-10% drop in deposits is a cause for concern.
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