Banking Crisis Solved: Shale Oil Boom Floods Rural Banks With Cash

  • Date: 08/02/13
  • Anastasia Ustinova, Bloomberg

Deposits in banks with branches in the Bakken shale region, which stretches from central North Dakota to the northeastern corner of Montana, soared 15 percent last year, to $3.9 billion, after rising 27 percent in 2011, according to preliminary data from the Federal Reserve Bank of Minneapolis. “By any standard, deposits are exploding.”

In his office on the second floor of a glass-encased building on North Main Street in Watford City, N.D., Stephen Stenehjem rolls out a map of a proposed multimillion-dollar residential development and shakes his head in disbelief. “My dad would have been very pleased,” says Stenehjem, a third-generation banker and the chief executive officer of First International Bank & Trust. “For 25 years, our focus as a community bank was to help keep our small town alive. So it has been really fun to see this oil come back.”

Once a depressed town of 1,700 in what was America’s least-visited state, Watford City and its neighbors are at the center of North Dakota’s oil and gas boom. While about 470 banks across the U.S. have folded in the past five years, those serving America’s new fracking economy have seen explosive growth. Oilfield workers carrying paychecks, investors looking to build, and farmers enjoying mineral-rights payments are pouring money into banks. First International, with $1.3 billion in assets and 21 branches in North Dakota, Arizona, and Minnesota, hired 65 employees over the past year, including lenders, trust officers, and insurance agents, and plans to add 30 more this year. “It’s fun to be a banker in North Dakota,” Stenehjem says. “Even six or seven years ago, if there was a new pole barn going up in the county, I knew about it. Now I can’t keep track of everything.”

U.S. oil production grew at the fastest pace in at least six decades last year as horizontal drilling and hydraulic fracturing, or fracking, unlocked crude oil trapped in formations such as North Dakota’s Bakken shale. The oil boom has pushed down the area’s unemployment rate to 3.2 percent—the lowest in the nation—even as its population mushroomed 4 percent between April 1, 2010, and July 1, 2012.

Deposits in banks with branches in the Bakken shale region, which stretches from central North Dakota to the northeastern corner of Montana, soared 15 percent last year, to $3.9 billion, after rising 27 percent in 2011, according to preliminary data from the Federal Reserve Bank of Minneapolis. “By any standard, deposits are exploding,” says Ron Feldman, senior vice president for supervision, regulation, and credit at the Minneapolis Fed.

The surge has attracted investors and developers eager to meet the rising demand for housing, retail, entertainment, and other services. Since 2009 the number of new businesses has grown by almost 50 percent in the Bakken area, according to Federal Reserve data, compared with 5 percent growth for the rest of North Dakota and 3 percent nationally.

For rural banks, where agricultural loans remain a mainstay, that’s brought a gusher of out-of-town customers such as Mark Bragg, who moved to North Dakota from Palm Springs, Calif., less than two years ago. Bragg is planning the largest mixed-used development in Watford City, a $250 million project spanning 320 acres and featuring apartments, hotels, single-family homes, offices, and a shopping center. “California is in such financial trouble,” says Bragg, president of Bakken Housing Partners, which has loan proposals pending with First International Bank and other lenders. “I had to go somewhere else, where they are welcoming the economic activity.”

Full story