Deposit drain from small banks into JPM, WFC, C slowed

The headquarters of First Republic Bank is seen on March 16, 2023 in San Francisco, California, USA.

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An increase in deposits moving from smaller banks to large institutions includes JPMorgan Chase And Wells Fargo amid concerns about the stability of lenders in the region has slowed in recent days, CNBC has learned.

Uncertainty caused by collapse of Silicon Valley Bank earlier this month caused outflows and depressed stock prices at peers including First Republic And northwest.

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The situation has roiled markets around the globe and forced US regulators intervention to protect the bank’s customers, which began to improve around March 16, according to people familiar with cash flow at leading institutions. That’s when America’s 11 largest banks gather together to pump $30 billion into the First Republic, essentially returning some of the deposits they’ve made recently.

“The panicking people got out immediately,” the person said. “If you’re still undecided now, maybe you’ll stay where you are.”

This development enabled regulators and bankers to address the stresses in the US financial system that emerged after the collapse of the US financial system. SVB, the bank for venture capital investors and their companies. Its boom has occurred at breakneck speed this month, fueled by social media and the ease of online banking, in an event that is likely to affect the financial world for many years. next year.

Within days of foreclosure on March 10, another special lender signature bank was closed, and regulators exploited emergency powers to Stop point all customers of the two banks. The wave from the event spread around the world, and a week later Swiss regulators forced a long-rumored merger between UBS And Credit Suisse to help strengthen confidence in European banks.

Wear a lot of hats

The dynamism has brought big banks like JPMorgan and Goldman book in the awkward position of playing multiple roles at once during this crisis. Big banks are advising smaller banks while taking steps to restore confidence in the system and support ailing lenders like the First Republic, while raising billions of dollars. as a deposit and in a position to bid on the properties when they are for sale.

The wide scan of those cash flows is evident in the Federal Reserve data published on Friday, a snapshot of deposits delayed since March 15. While the big banks appear to be collecting deposits at the expense of smaller banks, the record does not reflects cash outflows from SVB as it is in the same large bank portfolio as the companies that earned its dollars.

While capital inflows to a leading institution have slowed to a “trickle-down” rate, the situation is volatile and could change if concerns arise about other banks, said one person who asked not to be named. ahead of the release of financial data next month. JPMorgan will begin banking earnings season on April 14.

At another major lender, which is based on the West Coast, cash inflows have only slowed in recent days, according to another person with knowledge of the matter.

Representatives for JPMorgan, Bank of America, Citigroup and Wells Fargo declined to comment for this article.

Post-SVB Handbook

The moves also reflect what a newer player has seen, according to Brex co-founder Henrique Dubugras. His startup, which caters to other VC-backed growth companies, has seen a surge new deposits and accounts after the collapse of SVB.

“Things have definitely calmed down,” Dubugras told CNBC in a phone interview. “There’s been a lot of change, but people are still putting money in the big banks.”

The post-SVB guidebook, he said, is for startups that keep cash for three to six months at regional banks or new entrants like Brex, while sending the rest to one of four companies. biggest company. That approach, he said, combines the services and features of smaller lenders with the perceived safety of banks that are too large to fail for most of their money.

“A lot of founders opened accounts at the big four banks, put a lot of money into it, and now they’re recalling why they didn’t do it in the first place,” he said. The biggest banks previously did not cater to risky startups, which is the domain of specialty lenders like SVB.

Dubugras said that JPMorgan, the largest US bank by assets, was the biggest deposit-taker among lenders this month, in part because venture capitalists have flocked to the bank. . That belief was backed up by anecdotes report.

Next Domino?

Attention has now turned to First Republic, the company has wobbled in recent weeks and its stock has lost 90% this month. The bank is known for its success in serving wealthy clients on the East and West coasts.

Regulators and banks have launched a Notable series measures intended to save the bank, primarily as a kind of firewall against another wave of panic that would swallow more lenders and put a strain on the financial system. Behind the scenes, regulators believe that the deposit situation at First Republic has stableBloomberg reported on Saturday.

The First Republic has rent JPMorgan and Lazard act as advisors to come up with a solution, which could involve finding more capital to stay independent, or selling to a more stable bank who knows the matter well. know.

If those fail, there is a risk that regulators will have to seize the bank, similar to what happened with SVB and Signature, they said.

While the flight of deposits from smaller banks has slowed, the past few weeks have exposed a glaring weakness in the way some banks manage their balance sheets. These companies were caught red-handed as the Fed engaged in its most aggressive interest rate hike in decades, leaving them with unrealized losses on bond holdings. Bond prices fall when interest rates rise.

It is likely that other institutions will face upheaval in the coming weeks, Citigroup CEO Jane Fraser say in one interview on Wednesday.

“There may be some smaller organizations that have similar problems in terms of them getting caught if they don’t manage their balance sheets as well as others,” says Fraser. “We certainly hope to have less rather than more.”

How Silicon Valley Banks Collapse


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