The First Republic Bank headquarters is seen on March 16, 2023 in San Francisco, California, United States.
Tayfun Coskun | Anadolu Agency | Getty Images
The wave of deposits moving from smaller banks to large institutions including JPMorgan Chase And Wells Fargo amid fears about regional lenders’ stability have dwindled to a trickle in recent days, CNBC has learned.
Uncertainty from the collapse of Silicon Valley Bank earlier this month led to outflows and plummeting stock prices among peers including First Republic and Pac West.
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The situation, which shook markets worldwide and compelled US regulators intervene to protect bank customers, it started to improve around March 16, according to people with knowledge of inflows at top institutions. That’s when 11 of the largest US banks teamed up to inject $30 billion into First Republic, essentially returning some of the deposits they had recently acquired.
“The people who panicked got out right away,” the person said. “If you haven’t made up your mind by now, you’re probably staying where you are.”
The development gives regulators and bankers breathing space to address tensions in the US financial system that arose after the collapse of SVB, the go-to bank for venture capital investors and their businesses. The implosion happened this month with dizzying speed, boosted by social media and the convenience of online banking, in an event likely to impact the financial world for years to come.
Within days of the March 10 seizure, another specialty lender, Signature Bank, was shut down and regulators used emergency powers to stop all customers of the two banks. Ripples from this event spread around the world, and a week later Swiss regulators forced a long-rumored merger between UBS And Credit Switzerland to help strengthen confidence in European banks.
Wear lots of hats
The dynamic has big banks like JPMorgan and Goldman Sachs in the awkward position of playing multiple roles simultaneously in this crisis. Big banks are advising smaller banks as they participate in moves to renew confidence in the system and prop up ailing lenders like First Republic as they raise billions of dollars in deposits and are in a position to potentially bid for assets when they come up for sale .
The wide range of those money flows is evident in the Federal Reserve facts released Friday, a delayed snapshot of deposits from March 15. While large banks seemed to be acquiring deposits at the expense of smaller ones, the deposits do not reflect an outflow from SVB because it fell into the same category of large banks as the companies that earned its dollars.
While inflows at one top institution have slowed to a “drip”, the situation is fluid and could change if concerns arise about other banks, said one person, who declined to be identified during his speech to the publication of financial numbers next month. JPMorgan kicks off its reporting season on April 14.
At another major lender, this one 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 on this article.
Post-SVB scenario
The moves, according to a newer player, also reflect what a newer player has seen Brex co-founder Henrique Dubugras. His startup, which focuses on other venture-backed growth companies, has seen a surge in new deposits and accounts following the collapse of the SVB.
The post-SVB playbook, he said, is for startups to hold cash in regional banks or new entrants like Brex for three to six months, while parking the rest with one of the four largest players. That approach combines the service and features of smaller lenders with the perceived safety of banks that are too big to fail for most of their money, he said.
“Many founders opened an account at a Big Four bank, moved a lot of money there, and now they remember why they didn’t do that in the first place,” he said. The largest banks have traditionally not focused on high-risk startups, which has been the domain of specialist lenders such as the SVB.
Dubugras said JPMorgan, the largest US bank by assets, was the biggest gainer in deposits among lenders this month, in part because VCs have been flocking to the bank. That belief was supported by anecdotes reports.
The next domino?
For now, attention is focused on First Republic, which has been reeling in recent weeks and whose shares lost 90% this month. The bank is known for its success serving high net worth clients on the east and west coasts.
Supervisors and banks already have one remarkable series of measures to try to save the bank, mostly as a sort of firewall against another round of panic that would swallow up more lenders and strain the financial system. Behind the scenes, regulators believe that the deposit situation at First Republic has stabilizedBloomberg reported Saturday.
First Republic has hired JPMorgan and Lazard as consultants to come up with a solution, which may require finding more capital to maintain independence or a sale to a more stable bank, experts said.
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. A spokesperson for the First Republic declined to comment.
While deposit flight from smaller banks has slowed, the past few weeks have exposed a glaring weakness in the way some banks have managed their balance sheets. These companies were trampled underfoot when the Fed launched its most aggressive rate hike campaign in decades, leaving them with unrealized bond losses. Bond prices fall when interest rates rise.
It is likely that other institutions will experience turmoil in the coming weeks, Citi group CEO Jane Fraser said during a interview on Wednesday.
“There could very well be some smaller institutions that have similar problems of getting caught without managing balance sheets as proficiently as others,” Fraser said. “We certainly hope it will be fewer, not more.”
