Flow Of Deposits From Smaller Banks Into Financial Behemoths Like JPMorgan Chase Has Slowed: Sources

According to information obtained by CNBC, the influx of deposits that were previously going from smaller banks to larger ones like JPMorgan Chase and Wells Fargo due to concerns about the health of regional lenders has since slowed to a trickle.

The failure of Silicon Valley Bank earlier this month created uncertainty that led to withdrawals and falling share prices at competitors including First Republic and PacWest.

According to people with knowledge of inflows at major banks, the situation, which shook global markets and prompted U.S. regulators to intervene to safeguard bank consumers, started to improve about March 16. At that point, a group of 11 of the largest American banks came together to put $30 billion into First Republic, thereby returning some of the deposits they had previously acquired.

“The people who panicked got out right away,” said the person. “If you haven’t made up your mind by now, you are probably staying where you are.”

With SVB, the go-to bank for venture capital investors and their startups, collapsing, tensions in the U.S. financial system have now been alleviated, giving regulators and bankers breathing room to address them. Social media and the convenience of internet banking accelerated its implosion this month, which is likely to have long-lasting effects on the financial industry.

After being seized on March 10, another specialty lender, Signature Bank, was shut down shortly after, and regulators used emergency powers to provide financial support for all of the two banks’ customers. The effects of this occurrence were felt all over the world, and a week later Swiss regulators pushed the long-rumored merger of UBS and Credit Suisse to support European banks’ confidence.

Big banks like JPMorgan and Goldman Sachs are in the unfortunate position of having to play several roles in this crisis at once due to the dynamic. As they earn billions of dollars in deposits and put themselves in a position to potentially bid on assets when they are up for sale, big banks are advising smaller ones, taking part in efforts to restore consumer trust in the system, and supporting struggling lenders like First Republic.

Federal Reserve figures, a delayed snapshot of deposits as of March 15, which was released on Friday, show the wide scope of those money transactions.

The records do not include outflows from SVB because it was included in the same big-bank category as the businesses who received its funds, even though bigger banks appeared to gain deposits at the expense of smaller ones.

One source, who asked to remain anonymous because the remarks were made prior to the publication of financial data next month, said that although inflows into one top institution have slowed to a “trickle,” the situation is fluid and might alter if worries about other banks surface. On April 14, JPMorgan will start the bank earnings season.

Another individual with knowledge of the situation said that inflows only recently slowed at another big lender, this one situated on the West Coast.

There were no comments from JPMorgan, Bank of America, Citigroup and Wells Fargo.

Henrique Dubugras, a co-founder of Brex, claims that the actions are consistent with what one newer player has observed as well. After the SVB collapse, his firm, which serves other VC-backed growing enterprises, has experienced an increase in new deposits and accounts.

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

According to his post-SVB approach, entrepreneurs should lodge their remaining funds with one of the four largest players and keep three to six months’ worth of cash at local banks or upstarts like Brex. According to him, that strategy combines the features and services of smaller lenders with the security associated with too-large-to-fail banks for the majority of their funds.

“A lot of founders opened an account at a Big Four bank, moved a lot of money there, and now they’re remembering why they didn’t do that in the first place,” he said. The biggest banks haven’t historically catered to risky startups, which was the domain of specialty lenders like SVB.

According to Dubugras, JPMorgan, the largest bank in the United States by assets, gained the most deposits overall this month among lenders, in part because VCs rushed to the bank. Anecdotal evidence has been used to support that opinion.

For the time being, focus is on First Republic, whose shares have dropped 90% this month and have teetered in previous weeks. On both the East and West coasts, the bank is renowned for its success in serving affluent clients.

A remarkable set of actions have already been taken by regulators and banks to try to salvage the bank, largely as a type of barrier against a new wave of panic that would engulf additional lenders and strain the financial system.

According to Bloomberg on Saturday, regulators believe the situation with First Republic’s deposits has calmed.

According to those with knowledge of the situation, First Republic has retained JPMorgan and Lazard as advisors to find a solution, which might entail raising additional funds to maintain independence or selling the company to a more secure bank.

According to them, if they fail, there is a chance that regulators will have to confiscate the bank, like they did with SVB and Signature. An official of First Republic declined to respond.

A significant weakness in how certain smaller banks have maintained their balance sheets has now come to light, despite the fact that the flight of deposits from those institutions has slowed.

These businesses saw unrealized losses on their bond holdings as a result of the Fed’s most ferocious rate hike campaign in decades. As interest rates increase, bond prices decline.

According to Citigroup CEO Jane Fraser, there will probably be changes at other institutions in the upcoming weeks. “There could well be some smaller institutions that have similar issues in terms of their being caught without managing balance sheets as ably as others,” Fraser said.

“We certainly hope there will be fewer rather than more.”

(Adapted from CNBC.com)

Categories: Economy & Finance, Strategy, Uncategorized

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