- Key insight: The largest uninsured depositors were most likely to flee in 2023 runs, even when taking into account insurance coverage and deposit types.
- Supporting data: SVB and Signature each lost over half of deposits in days, and First Republic would have lost nearly that much if not for cash infusion from the banking industry.
- Forward look: The report's findings could shape the ongoing discourse over deposit insurance reform in Congress.
A postmortem report released by the Federal Deposit Insurance Corp. Thursday on the historic bank failures in 2023 found that size and sophistication of depositors at Silicon Valley Bank, Signature Bank, and First Republic Bank were the largest predictor of whether a depositor would run.
The staff report found that fully insured retail depositors at those banks largely stayed put, adding weight to the idea that the banking crisis was driven by withdrawals by the top depositors at the three banks, who drew their funds mostly through wire transfers.
"Top depositors were more likely to run, even after taking into consideration their insurance coverage and deposit types," the report stated. "In fact, many business depositors drew down balances in business operations accounts that were likely to be insured, such as residential mortgage servicing escrow accounts."
The study paints a picture of three banks that each relied heavily on concentrated, largely uninsured business deposits — funding models that left the firms particularly vulnerable to a rapid draining of deposits facilitated by online banking. The findings underscore how reliance on concentrated uninsured deposits left the three banks acutely exposed to modern digital bank runs. While much of the discussion of reforms in the wake of the failures has focused on raising
"I have long believed that regulators need to develop a more sophisticated understanding of deposit behavior," said FDIC Chair Travis Hill, in a release announcing the study. "This study provides a highly detailed account of deposit flows during the fastest bank runs in U.S. history and deepens our understanding of run dynamics in today's banking environment."
The FDIC found uninsured balances make up roughly 94% of deposits at SVB, 76% at Signature, and 74% at First Republic. The banks' top 0.5% controlled 62% of deposits at Signature, 50% of those at First Republic, and 39% of deposits at SVB.
The study also found that as anxiety about the banks' solvency grew in March, these concentrated uninsured depositors were the fastest to evacuate their funds. Between March 7 and March 17, SVB and Signature each lost more than half their deposits. The report also showed that the vast majority of deposit outflows left by wire, including Fedwire and SWIFT.
First Republic, which
The runs occurred over just a few business days, with daily outflows exceeding 20% of deposits.
"This rate of deposit outflow is unprecedented," the study noted. "Much of the runs at all three banks occurred in just three business days."
Depositors with funds above the $250,000 FDIC deposit insurance limit — particularly those with more than 75% of their deposits uninsured — were far more likely to run than other customers. Even after controlling for uninsured balances, the largest depositors at SVB and Signature were still significantly more likely to flee. While those with longer-term relationships and multiple accounts at the banks were less likely to run, this effect "was substantially smaller than the effect of being uninsured or being a top depositor" and history with the bank was "less closely related to consumer depositors' decision to run" than size and lack of insurance.
"At all three banks, depositors that ran between March 7 and March 17 mostly withdrew all or nearly all their balances in business operations accounts, leaving very little to no residual balances for business operations purposes," the report stated. "We observed this for business operations accounts that held business deposits and business operations accounts that held passive escrow deposits, and for both financial and nonfinancial firms."
The average fully insured customer, by contrast, behaved very differently. Fully insured retail deposits did not materially run at any of the three banks, and in some cases increased during the period studied. The agency says deposit insurance remained effective at preventing ordinary retail depositor panic even amid systemic stress.
"At [Signature Bank], these [retail] balances increased between March 7 and March 13 and then returned to roughly the March 6 balance by March 17," the report states. "At SVB, fully insured retail deposits increased 46 percentage points between March 7 and March 17. And at FRB, fully insured retail deposits increased 8 percentage points over the same period."
