Small and midsized banks won back nearly $6 billion of deposits during the week that ended March 22, staunching hemorrhaging caused by the sudden failures of prominent regional lenders.
The latest Federal Reserve data showed that, excluding the 25 largest banks by U.S. assets, the industry gained back more than $5.8 billion of deposits. It marked a modest but important gain of 0.1%, to nearly $5.4 trillion because it stemmed steep losses earlier in the month, according to the Fed report published late Friday.
During the week that ended March 15 — the period in which Silicon Valley Bank and Signature Bank were shuttered by regulators — deposits among the smaller banks fell by $196.4 billion. Over the 52 weeks prior to the failures, weekly deposit swings averaged just $7.7 billion, according to an S&P Global Market Intelligence analysis.
After the failures and Silvergate Bank's downfall via liquidation, depositors feared the banks' troubles might prove contagious, so many moved cash into U.S. Treasuries and money market accounts. Silicon Valley Bank's outsized
Analysts, however, said the failed banks' problems appeared isolated and had anticipated the industry's deposit challenges would ease. The latest data marked a key step toward that end.
"A sense of calm seems to be returning to the system following a few unfortunate weeks of turmoil," Piper Sandler analyst Scott Siefers said in a report.
Still, when factoring in the biggest U.S. banks, overall deposits fell $84 billion in the March 22 period, or 0.5%, to $16 trillion, the S&P analysis of Fed data found.
Michael Jamesson, a principal at the bank consulting firm Jamesson Associates, said federal regulators' recent decision to cover all depositors at the failed banks — not just those deposits insured by the Federal Deposit Insurance Corp. — soothed concerns. Better understanding of SVB's and Signature's unique problems also helped, as most community banks have been able to demonstrate to their customers that they are not overly exposed to the tech sector or crypto markets, he said.
However, Jamesson said community and regional banks likely have a tough remainder of 2023 ahead, given rising interest rates already made deposits more expensive to gather. At the same time, the bank failures amplified long-simmering concerns about a recession. A downturn, he said, would inevitably slow loan demand and drive up credit defaults — a combination that would cut into banks' profits.
Even ahead of the failures, business owners and the bankers who lend to them worried about rapidly rising interest rates intersecting with high inflation.
When rates rise rapidly — the Fed boosted them multiple times over the past year and again
The combination of high rates and lingering inflationary pressures historically has crippled the economy. "Seeing these banks fail, it just exacerbates the situation," Jamesson said.
