Deposits flowing to big banks as smaller ones struggle to maintain asset base

JPMorgan recently warned that more banks could run out of reserves just like Silicon Valley Bank (SVB) did if the current pace of deposit flight continues. According to the article on Global Reporter, the rapid withdrawals of deposits have put pressure on smaller banks like SVB, forcing them to dip into their reserves to maintain their liquidity. This trend could spread to other banks, especially those with limited resources.

The article goes on to explain that the flight of deposits has prompted some customers to move their money into money market funds instead. As per a report published in the Financial Times, money market funds saw over $286bn in inflows due to this trend. Notably, banks such as Goldman Sachs, JPMorgan Chase, and Fidelity have benefitted from these large inflows.

The deposit flight trend has alarmed many industry leaders who fear its far-reaching consequences. Moreover, current market conditions, such as low-interest rates and increased competition, have made it even more challenging for smaller banks to retain their customers’ deposits.

In her article on The New York Times, Emily Flitter reported that the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) held a bipartisan briefing for members of Congress regarding this issue. The briefing was organized by the House Financial Services Committee’s Chair, Maxine Waters.

The effects of deposit flight are likely to be felt not only by smaller banks but also by their customers. Deposit withdrawal could mean that loans and mortgages become more expensive due to banks raising their interest rates to maintain their liquidity levels.

In conclusion, the recent events surrounding Silicon Valley Bank’s failure and JPMorgan’s warning of more banks running out of reserves if the deposit flight continues have raised concerns among industry experts. With the Federal Reserve and FDIC already taking steps to address this issue, industry players are keeping a close watch on the situation to mitigate its impact on customers and the overall banking sector.