Ok, I don’t know that vault space for deposits is really a problem, but it wouldn’t be hard to imagine that it is a problem with the rapid growth in deposits in banks operating in North Dakota’s Bakken oil fields.
Though, it’s worth noting that even growth in deposits at banks on the other side of the state from the oil patch are nothing to sneeze at.
Bank deposits in nine counties in the heart of the Bakken Formation have mushroomed from $1.4 billion in 2007 to $3.2 billion as of June 30, an increase of 128 percent, according to an analysis by The Forum.
By comparison, the growth in bank deposits in Cass County during that period rose 37.5 percent, from $3.28 billion to $4.5 billion. The comparable increase in Grand Forks County was 66 percent, from $1 billion to $1.7 billion.
This surprises me a little bit. What we’re often told about the influx of workers into the Bakken oil patch is that they’re not becoming permanent residents. They’re workers pulled from other parts of the country who aren’t putting down roots in North Dakota. This seemed to be validated by the recent election results in which the oil patch vote didn’t manifest for Republicans.
So you wouldn’t think that workers would be making significant deposits in local or regional banks, choosing instead to send their paychecks and other income back home.
Maybe that is what’s happening. Maybe these deposits in local bank are only, for the most part, the portion of the oil boom’s economic impact that has landed in the laps of local workers and business owners.
It’s hard to say, but the growth is amazing either way.
What’s interesting, though, is what the banks are doing with all this new cash. After all, for banks deposits aren’t where they make their money. They pay customers interest for the privilege of keeping their funds on deposit. Where banks make most of their money, outside of what fees they may charge their customers, is by lending out funds secured by the deposits or making investments.
These oil patch banks are having a hard time doing that. For one thing, a lot of these funds (those that may be deposited by transitory oil-patch workers) won’t be spending a lot of time in their banks. It’s hard to make a 30-year home loan on the back of deposits that may only be in the bank for a few years, as one banker in the article notes. For another, it’s hard to give out loans for business and property development when the oil boom is starting to show signs of plateauing. The economy in the west is going to stay strong for decades to come, I believe, but how many more restaurants are going to be needed? How many hotels? The banks are no doubt wary of investing in overdeveloping in some of these communities.
And investment isn’t a pretty picture right now. The federal government has depressed interest rates, which makes it tough to find good returns. Plus, let’s not forget the looming fiscal cliff. If our friends on the left get their way and we see a dramatic tax increase on capital gains from investments anyone putting their money out there now could be hit in a big way.
Who could blame banks for sitting on some of these massive deposits in the mean time?