The ongoing banking crisis has created anxiety for depositors, but not enough money is moving to upset the financial system.
- Friday’s Federal Reserve report on the banking system shows that deposits outside of the largest U.S. banks dropped by $108 billion, or 1.9%, the week after Silicon Valley Bank collapsed.
- Deposits at the 25 largest U.S. banks increased by $120 billion simultaneously.
- This amounts to the largest single-week drop on record for deposits, signaling that outflows from small banks are real but have not crippled operations for regional banks facing consumer anxieties, Axios reports.
- Fed Chair Jerome Powell mentioned on March 22 that “deposit flows in the banking system have stabilized over the last week.”
Why It’s Important
The past three weeks have represented one of the largest American banking crises in decades, with Silicon Valley Bank, Signature Bank, and Silvergate Bank collapsing over the weekend of March 10. The crisis has destabilized the national banking industry and required $153 billion in federal bailouts to prevent a larger crisis.
About 16% of Americans moved money out of their bank accounts in the aftermath, investors poured money into safer funds, startups are struggling to find investors, and the Federal Reserve pondered the possibility that its rate hikes could cripple additional banks.
The Federal Reserve’s new numbers might reflect the system’s anxieties but do not suggest an imminent danger to the financial system. As Axios notes, there have been multiple higher percentage drops in the past few decades, and the scale at which things are shifting is not necessarily worrisome.
“Small banks had $97 billion more in cash on hand at the end of the week, suggesting that some of the borrowing was to build war chests as a precautionary measure in case depositors asked to redeem their money,” says Capital Economics’ analyst Paul Ashworth.