Small and mid-sized banks lost $120 billion in deposits in just one week as turmoil gripped the regional banking world, according to new Federal Reserve data, while customers sought safer havens at the country's largest financial institutions.
The dramatic movements happened during a tumultuous period marked by the seizures of Silicon Valley Bank and Signature Bank on March 10 and March 12, which sparked fears of potential runs at other banks.
As regional and community banks lost $120 billion during the week ending March 15, the 25 biggest banks raked in $67 billion in new deposits on a seasonally adjusted basis, according to new Fed data released Friday. The net outflow from all banks was $98 billion, an annual drop of 5.8%. Total industry deposits of $17.5 trillion was the lowest count since September 2021.
The new numbers reinforce the big bank-small bank divide during this current crisis, as the giants of the industry escape some of the same investor pressure being applied to smaller rivals. It also accelerates some trends that were already in place. Deposits had been declining at small (and big) banks before the Silicon Valley failure, falling each of the first two months of the year. Deposits for all banks were also down 5% annually in the fourth quarter of 2022.
Many observers attribute this industrywide shift to pressure being applied by an aggressive Federal Reserve campaign to lower inflation. During the early part of the pandemic, when interest rates were historically low, banks were awash in deposits. When the Fed began moving those rates higher to cool the economy, customers who had deposits began seeking out places with higher yields. The first year-over-year deposit decline for all banks came in the second quarter of 2022.
Big banks weren't the only place customers parked their money. Inflows into money market funds totaled $121 billion in the week following Silicon Valley Bank's collapse, the largest inflow since early 2020, and then another $117 billion for the week ending March 22, according to the Investment Company Institute. Those are down from average weekly inflows of $16 billion year to date, according to JPMorgan Chase.
Government officials have been working to prevent massive deposit outflows in the aftermath of the bank failures. They first pledged to cover all depositors at both banks they seized, hoping that would calm any panic. But some regional lenders continued to see outflows. Eleven giant banks, in fact, decided to provide one troubled regional lender, First Republic, with $30 billion in uninsured deposits to stabilize the situation.
