Flight of deposits from small banks to JPM, WFC, C slowed

The influx of deposits from small banks to large institutions, including JPMorgan Chase And Wells Fargo amid fears that the stability of regional lenders has slowed in recent days, CNBC has learned.

Uncertainty caused by the collapse of Silicon Valley Bank earlier this month triggered outflows and falling stock prices among peers, including First Republic and PacWest.

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The situation, which rocked global markets and forced U.S. regulators to step in to protect bank customers, began to improve around March 16, according to people with knowledge of inflows at major institutions. That’s when 11 of America’s biggest banks banded together to pump $30 billion into the First Republic, essentially returning some of the deposits they had recently earned.

“People who panicked came out right away,” he said. “If you haven’t made up your mind yet, you probably stay where you are.”

This development gives regulators and bankers leeway to deal with the strains in the US financial system that emerged after the collapse of SVB, the go-to bank for venture capitalists and their businesses. Its implosion happened at breakneck speed this month, turbocharged by social media and the ease of online banking, in an event that is set to impact the financial world for years to come.

Days after its March 10 seizure, another specialist lender, Signature Bank, was closed and regulators called in emergency powers to support all customers of the two banks. The repercussions of this event reached the whole world, and a week later, Swiss regulators forced a long-running merger between UBS And Swiss credit contribute to strengthening confidence in European banks.

The momentum has pushed major banks like JPMorgan and Goldman Sachs in the delicate position of playing several roles simultaneously in this crisis. Big banks are advising smaller ones while participating in measures to renew confidence in the system and support struggling lenders like First Republic, while earning billions of dollars in deposits and being in a position to potentially bid on loans. assets as they are offered for sale.

The wide range of these money flows is apparent in Federal Reserve data released Friday, a delayed snapshot of deposits as of March 15. While the big banks seemed to be earning deposits at the expense of the smaller ones, the deposits don’t account for SVB’s outflows because it was in the same big bank category as the companies that earned its dollars.

Although inflows into a top-tier institution have slowed to a ‘trickle’, the situation is fluid and could change if concerns about other banks arise, said a person, who declined to be identified before publication financial figures next month. JPMorgan will kick off the banking earnings season on April 14.

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

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

The moves also reflect what a new player has seen, according to Brex co-founder Henrique Dubugras. His startup, which caters to other venture capital-backed growth companies, saw a spike in new deposits and accounts after the SVB collapse.

“Things have calmed down for sure,” Dubugras told CNBC in a phone interview. “There have been a lot of ins and outs, but people are still putting money into the big banks.”

The post-SVB playbook, he said, is for startups to keep three to six months of cash in regional banks or new entrants like Brex, while parking the rest in one of the big four players. This approach combines the service and features of small lenders with the perceived security of too-big-to-fail banks for most of their money, he said.

“Many founders opened an account at a Big Four bank, transferred a lot of money there, and now they remember why they didn’t do it in the first place,” he said. The biggest banks have historically not taken on venture start-ups, which was the domain of niche lenders like SVB.

Dubugras said JPMorgan, the largest U.S. bank by assets, was the biggest deposit gainer among lenders this month, in part because VCs flocked to the bank. This belief has been supported by anecdotal reports.

For now, attention has turned to the First Republic, which has tumbled in recent weeks and whose shares have lost 90% this month. The bank is known for its success with high net worth clients on the East and West coasts.

Regulators and banks have already put in place a series of remarkable measures to try to save the bank, mainly as a kind of firewall against a new wave of panic that would swallow more lenders and strain the financial system. Behind the scenes, regulators believe the filing situation at First Republic has stabilized, Bloomberg reported on Saturday.

First Republic has hired JPMorgan and Lazard as advisers to find a solution, which could involve finding more capital to remain independent or a sale to a more stable bank, people with knowledge of the matter said.

If these fail, regulators may have to seize the bank, as happened to SVB and Signature, they said. A spokesperson for the First Republic declined to comment.

As the flight of deposits from smaller banks has slowed, the past few weeks have revealed glaring weakness in the way some have managed their balance sheets. These companies were caught off guard as the Fed embarked on its most aggressive rate hike campaign in decades, leaving them with unrealized losses on bond holdings. Bond prices fall as interest rates rise.

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

“There may well be smaller institutions that have similar issues in that they’re taken on without managing balance sheets as effectively as others,” Fraser said. “We certainly hope there will be less rather than more.”