CNBC has learned that the rush of deposits migrating from smaller banks to large institutions such as JPMorgan Chase and Wells Fargo due to concerns about the soundness of regional lenders has slowed to a trickle in recent days.
The uncertainty produced by Silicon Valley Bank’s failure earlier this month sparked outflows and plummeting share prices at peers such as First Republic and PacWest.
According to persons familiar with inflows at major institutions, the scenario that roiled global markets and pushed US regulators to intervene to protect bank clients began to improve about March 16. That’s when 11 of the country’s largest banks teamed together to put $30 billion into the First Republic, effectively returning some of the deposits they’d lately earned.
“Those who panicked got out right away,” the individual stated. “If you haven’t made up your mind yet, you’re probably going to stay where you are.”
The development provides regulators and bankers with breathing room to address pressures in the US financial system that surfaced with the failure of SVB, the go-to bank for venture capital investors and their businesses. Its implosion happened at breakneck speed this month, fueled by social media and the convenience of internet banking, in an event that will have long-term ramifications for the financial world.
Another specialist lender, Signature Bank, was shut down within days of its March 10 seizure, and authorities used emergency powers to backstop all clients of the two banks. This catastrophe sent ripples around the world, and Swiss regulators forced a long-rumored merger between UBS and Credit Suisse a week later to help shore up confidence in European banks.
Wearing several caps
The dynamic has left large banks like JPMorgan and Goldman Sachs in the unenviable position of concurrently playing numerous roles in this catastrophe. Big banks are counseling smaller banks while also taking steps to restore trust in the system and support failing firms like First Republic, all while accumulating billions of dollars in deposits and perhaps bidding on assets as they come up for sale.
The Federal Reserve numbers issued Friday, a delayed snapshot of deposits as of March 15, show the vast spread of those money transactions. While bigger banks appeared to acquire deposits at the expense of smaller ones, SVB’s outflows were not captured in the reports since it was in the same big-bank category as the corporations that gained their funds.
Although inflows into one major institution have slowed to a “trickle,” the situation is fluid and might alter if concerns about other banks develop, according to one individual who declined to be identified since the statistics are due out next month. On April 14, JPMorgan will kick off the bank earnings season.
According to another individual familiar with the situation, inflows at another significant lender, this one situated on the West Coast, has only recently slowed.
Representatives from JPMorgan, Bank of America, Citigroup, and Wells Fargo declined to comment on this piece.
Playbook for Post-SVB
According to Brex co-founder Henrique Dubugras, the maneuvers resemble what one newer player has noticed as well. His firm, which serves other VC-backed growing enterprises, has witnessed an increase in new deposits and accounts since the SVB’s demise.
“Things have definitely calmed down,” Dubugras told CNBC over the phone. “There have been many ups and downs, but people continue to put money into the big banks.”
According to his post-SVB model, companies should store three to six months of cash at smaller banks or new entrants like Brex, while putting the rest with one of the four biggest institutions. For the most part, he added, this method combines the service and features of smaller lenders with the perceived safety of too-big-to-fail banks.
“A lot of founders opened an account at a Big Four bank and moved a lot of money there, and now they’re wondering why they didn’t do that in the first place,” he explained. Historically, the largest banks have not catered to riskier startups, which have been the realm of specialty lenders like SVB.
According to Dubugras, JPMorgan, the largest bank in the United States by assets, was the highest single gainer of deposits among lenders this month, thanks in part to VCs flocking to the bank. Anecdotal evidence supports this viewpoint.
What will be the next domino to fall?
For the time being, all eyes are on the First Republic, which has been teetering in recent weeks and whose shares have dropped 90% this month. The bank is well-known for its ability to cater to rich customers on both the East and West coasts.
Regulators and banks have already put in place a remarkable set of measures in an attempt to salvage the bank, mostly as a kind of buffer against another round of panic that would swallow additional lenders and strain the financial system. According to Bloomberg, regulators believe the deposit situation at First Republic has stabilized.
According to persons familiar with the situation, First Republic has retained JPMorgan and Lazard as advisors to come up with a solution, which might include raising more capital to remain independent or selling to a more solid bank.
If those fail, regulators may be forced to confiscate the bank, as was the case with SVB and Signature, they claimed. A representative for the First Republic declined to comment.
While the flight of deposits from smaller banks has slowed, the last few weeks have shown a major flaw in how some have handled their balance sheets. These firms were caught off guard by the Fed’s most aggressive rate hike campaign in decades, leaving them with unrealized losses on bond holdings. As interest rates climb, bond prices decline.
Other banks are likely to suffer turbulence in the coming weeks, Citigroup CEO Jane Fraser warned in an interview on Wednesday.