Kansas Banking Commissioner says state banks safe
“Kansas banks are extremely safe. They're extremely sound,” Kansas Banking Commissioner David Herndon told Kansas lawmakers at a special briefing Monday.
In the wake of at least three national and international bank failures, a lot of Kansans are starting to worry about just how safe their dollars are. The state's top banking regulator says there's a good reason not to worry if your dollars are in a state-chartered bank.
“Their money is safe. It's available to them as they need it,” Herndon said.
There are 176 state-chartered and regulated banks across Kansas and they generally have the word ‘state’ in their name, though not always. The biggest banks include Emprise Bank, Equity Bank, CrossFirst Bank, Security Bank of KC, and KS State Bank. The smallest include Prescott State Bank, State Bank of Burrton, Towanda State Bank, Bison State Bank, and Walton State Bank. While their size varies greatly, they are all locally owned and operated.
That's the first reason the state banking commissioner says your money is safe with them - the bankers are your neighbors and generally have the more pragmatic and conservative attitudes of Kansans.
“So, I believe have, and will continue to, effectively manage through this economic period. They understand the risk and they understand how to manage through it,” Herndon said.
Secondly, he says, they don't practice speculative investing in industries like cryptocurrency, venture capital, and technology, like the failing banks, were.
“They’re not overly reliant on singular volatile markets, especially underperforming markets like crypto or technology or venture capital,” he said.
Finally, Herndon told lawmakers, Kansas state-chartered banks don't put all their eggs in one basket. They spread out their investments among many different sectors.
Other bankers agreed with him, saying one of the failed banks had 45% of its investments in a single sector. The norm, he said, is closer to 6%.
Alex Orel of the Kansas Bankers Association added, “That is not traditional, conventional banking. And that is not how the majority of the institutions in our country operate.”
Herndon says the big banks that failed, failed because they ran out of ready cash to answer customer demands and tried to fix that by selling off bonds for less than they were worth, then investing the money in high-risk, high-gain sectors.
In contrast, the Kansas Banking Commissioner says state-regulated banks are doing well. Only four out of 176 banks are having any problems at all right now. Two of them are struggling with accounting problems. While two others are having compliance issues with state regulations. None of them is in the most highly endangered category right now.
Orel says loans are up by 11.16%, deposits up by 1.58% and assets grew by 1.71%, all positive signs for banking success.
“Right now, Kansas banks are very, very healthy,” Herndon repeated.
He added that state-chartered Kansas banks regularly stress-test their balance sheets and investment portfolios to see what they need to do to protect themselves and your dollars from sudden changes like last year's interest rate hike to fight inflation.
Rep. Michael Dodson, R Manhattan, wondered about how the regional Silicon Valley Bank (SVB) and Signature Bank managed to fail despite increased banking regulations passed after the 2008 mortgage crisis.
“Is it a matter of regulators not doing their jobs or (have) those regulations been pared back since that first collapse?” he asked.
“Some of the Dodd-Frank regulation that was adopted after the 2008 crisis was rolled back in a previous administration,” Herndon said.
Rep. Laura Williams, R Lenexa, wondered how common bank failures are in Kansas.
“How many Kansas state banks have failed since 2008?” she asked.
“One failed right during the pandemic,” Herndon said. “It had nothing to do with the pandemic.”
He added there might have been one more during the 2008 crisis before he became the Banking Commissioner.
Rep. Rebecca Schmoe, R Ottawa, asked about the impact on Kansas banks of the federal government’s announcement it would not insure accounts over the $250,000 limit in small banks as it had for SVB and Signature.
“I'm very concerned that we are going to see larger investors pulling their money out of these community banks and what is going to happen to these communities if they do that,” she said.
“I've been a Kansas banker for over 50 years. And I know a lot of Kansas bankers. I know that they know their customers. And they have conversations with their customers, especially the large dollar depositors,” Herndon responded.
The federal government, through the FDIC, do insure all bank accounts up to the $250,000 mark, regardless of the size they’re in. This means most Kansans are fully covered without having to do anything. The expanded coverage for SVB and Signature customers was a special dispensation.