Customers Have All But Stopped Pulling Deposits from Small Banks

Deposits at small banks have stabilized after plunging after the sudden implosion of Silicon Valley Bank. 

Data from the Federal Reserve released Friday show that in the week following March 8, when the SVB bank run began, customers yanked $185 billion from banks smaller than the 25 largest lenders, the most since at least 1973. That frenzy all but abated a week later, when deposits shrank by just $1 billion, as the chart below shows.

The turnabout suggests that the government’s swift rescue of depositors at SVB and Signature Banks, which also failed, combined with regulatory backstopping of the banking system, may have eased concern among customers of smaller lenders. 

In hearings before lawmakers this week, Nellie Liang, undersecretary for domestic finance at the Treasury Department, said the government would rescue depositors at smaller banks much like it did with Silicon Valley customers if there was a risk of a bank run causing a “contagion.” 

The data show the opposite happend at the largest 25 banks, where deposits swelled by $120 billion the week following the SVB crisis, only to fall by $96 billion the next week.