Small Lenders Lost $109 Billion During Banking Crisis

Customers pulled $109 billion from smaller banks during the recent banking crisis.

That’s according to recent research by Moody's Corp., which also shows that larger banks saw a $120 billion influx during the same time period.

The research — cited in a Bloomberg News report Monday (March 27) — notes that small banks’ deposits declined by 1.5% in the week through March 15 compared to 2022, the first yearly decrease since 1986.

The Moody’s report says the figures “are of particular interest as they include developments in the balance sheet of the US banking system” in a time of “very significant funding strains and deposit runs at some banks following the failures of Silicon Valley Bank and Signature Bank.”

Moody’s researchers add that deposits also shifted to outside the banking system to money market mutual funds, with U.S. bank deposits declining by $53 billion and money market mutual fund balances increasing by $121 billion.

As PYMNTS wrote Monday, the wave of deposits to big banks reportedly began to slow March 16, the same day 11 banking giants pooled their funds to pump $30 billion into struggling regional lender First Republic.

“Together, we are deploying our financial strength and liquidity into the larger system, where it is needed most,” the group said at the time. “Smaller- and medium-sized banks support their local customers and businesses, create millions of jobs and help uplift communities.”

Also seeing a wave of new deposits was U.K. embedded finance firm ClearBank, which recorded a 20% increase in inflows the week that Silicon Valley Bank (SVB) collapsed.

“We’ve had a lot of inflow that’s driven that surplus cash in terms of flight to quality,” Charles McManus said Monday.

And earlier this month, brokerage firm Charles Schwab announced that its clients had deposited $16.5 billion in the days following the SVB collapse and the subsequent government takeover of Signature Bank two days later.

The downfalls of these two lenders will be the focus of a hearing Tuesday (March 28) before the Senate Banking Committee.

Among those scheduled to testify is Michael Barr, the Federal Reserve’s vice chair for supervision, whose prepared testimony — as PYMNTS has noted — suggests a greater focus on whether regulators have gone far enough.

Barr’s comments say that the recent crisis has shown the need for a new understanding of banking, due to the rise of new technology and new risks.

“To that end, we are analyzing what recent events have taught us about banking, customer behavior, social media, concentrated and novel business models, rapid growth, deposit runs, interest rate risk, and other factors, and we are considering the implications for how we should be regulating and supervising our financial institutions,” the testimony reads.