State commissioner monitoring national bank stress, confident in Arkansas banking system

Arkansas State Bank Commissioner Susannah Marshall is keeping an eye on the national banking turmoil of the last few weeks surrounding Silicon Valley Bank of California, Signature Bank of New York, and others.

With a run on deposits at SVB and questionable loan stability at Signature, the nation’s financial system has been rattled. Simply put, a lack of diversification in loans and deposits spelled trouble for these banks with “too many eggs in one basket.” After their worries became public, several one-off stories emerged with other banks on shaky footing.

None of these instances signal a national banking crisis like ones seen before, Marshall said.

“I think the industry as a whole, the danger of those two failures on the industry as a whole and at the national level puts out a sense and feel of panic, concern, instability, anxiety within our business sector, within the banking sector,” she noted. “But quite frankly, we are at one of the strongest business cycles for the banking industry that we’ve had in many, many years. So those failures certainly are going to create angst or concern. I think it’s very important for us at the local level and at the national level to ensure the public that we have a strong and stable banking sector, a strong and stable financial system. Our job is to ensure the safety and soundness of that financial system.”

There were 83 commercial banks operating in Arkansas with combined assets of more than $150 billion as of Dec. 31, 2022.

Marshall said the turmoil of the last few weeks is compounded with the Federal Reserve Bank’s moves to tame inflation by raising interest rates. That said, Arkansas banks are overall on sound footing.

“What we want to focus on specifically is that community banks, by and large, stick to very traditional business models. They stick to serving their communities, serving their customers in those communities, and have very core types of deposit and lending activities,” she said.

That doesn’t mean Arkansas couldn’t be susceptible to national trends, but Marshall isn’t seeing any warning signs yet if they present themselves at all.

“In Arkansas, as we’re monitoring our institutions over the last couple of weeks, we are not seeing where there’s been any impact from the national events to what’s happening here at our state. We are talking with our bankers, they’re reaching out to us, and we’re evaluating closely the industry as a whole, as are my counterparts at the state and federal levels. I feel like we have reached a little bit more of a period of stabilization, and I believe that that trend’s going to continue,” she said.

Marshall said the tumultuous national banking scene wouldn’t change her agency’s core functions of oversight and soundness, but examiners may sharpen their vision for potential problem areas.

“We may ask more probing questions and enhance our review in certain areas, but that is not in relation to our banks, but more in relation to the industry as a whole and what we’ve seen, just to ensure that there is nothing that was, again, an unintended consequence impacting our institutions,” she said. “I don’t believe we have to change our overall approach because it’s been strong and sound and has provided good results within the Arkansas banking industry.”

Should depositors in Arkansas banks be concerned about liquidity or the availability of funds? Marshall said it would take a seismic, historic shift to undermine her confidence.

“You should absolutely have confidence in your deposits at your local institution. In the history of the FDIC dating back to 1933, no single insured depositor in an insured depository institution or bank that offers FDIC insurance, no one has ever lost a penny,” she said.

“I think that is a very strong message to ensure that the public as a whole has confidence in and is familiar with that understanding and that knowledge that they will be protected through FDIC insurance at their insured limits,” Marshall added. “I hope that certainly it is part of a positive message that we can send to Arkansans, to Arkansas banks, and Arkansas communities, that our industry here in Arkansas is safe and sound, FDIC deposits are insured, and we’re in an overall strong position.”

Marshall was a guest on this week’s edition of Talk Business & Politics. You can catch her full interview in the video below.