Small US banks see record drop in deposits after SVB collapse

Deposits at smaller U.S. banks fell by a record amount after the collapse of Silicon Valley Bank on March 10, according to data released Friday by the Federal Reserve.

Deposits at smaller banks fell $119 billion to $5.46 trillion in the week ended March 15, more than double the previous record drop and the biggest percentage drop overall deposits since the week ended March 16, 2007.

Borrowing from smaller banks, defined as all but the 25 largest U.S. commercial banks, rose $253 billion to a record $669.6 billion, according to weekly Fed data.

“As a result, smaller banks had an additional $97 billion at the end of the week, suggesting that some of the borrowing was to build up war chests as a precautionary measure in case depositors asked to redeem their money,” Capital Economics said. wrote analyst Paul Ashworth.

SVB collapsed after being unable to cope with a rapid and massive rush of depositors who withdrew tens of billions of dollars within hours.

Deposits at major U.S. banks rose $67 billion over the week to $10.74 trillion, according to Fed data.

Overall, U.S. bank deposits declined after rising sharply following pandemic relief in 2020 and early 2021.

The trend reversal for the big banks has been notable. The rise is equivalent to about half of the decline in deposits at smaller banks, suggesting that some of the money may have been invested in money market funds or other instruments.

The big banks also increased their borrowing during the week, by $251 billion.

It was unclear whether the displacement of deposits from smaller banks will persist.

“Deposit flows in the banking system have stabilized over the past week,” Fed Chairman Jerome Powell said on Wednesday.


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