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Deposit outflows from small banks to JPM, WFC, C slowed down




  • The surge in deposits moving from smaller banks to large institutions, including JPMorgan Chase and Wells Fargo, has slowed to a trickle in recent days, CNBC has learned.
  • The deposit drain, which roiled markets globally and forced regulators to step in to protect bank customers, began to improve around March 16, people with knowledge of the influx at top banks said.
  • The situation is fluid and could change if concerns arise for other banks, said one person, who declined to be identified ahead of the release of financial figures next month.
  • Recent weeks have exposed a glaring weakness in how some banks have managed their balance sheets, which could lead to more turbulence, Citigroup CEO Jane Fraser said.

First Republic Bank headquarters is shown on March 16, 2023 in San Francisco, California, United States.

Tayfun Coskun | Anadolu Agency | Getty Images

The surge in deposits moving from smaller banks to large institutions including JPMorgan Chase and Wells Fargo amid fears about the stability of regional lenders has slowed to a trickle in recent days, CNBC has learned.

Uncertainty caused by the collapse of Silicon Valley Bank earlier this month triggered outflows and plunged share prices at peers including First Republic and PacWest.

The situation, which roiled markets globally 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 top institutions. That’s when 11 of the biggest US banks banded together to inject $30 billion into First Republic, essentially returning some of the deposits they had recently received.

“Those who panicked got out straight away,” the person said. “If you haven’t made up your mind now, you’ll probably stay where you are.”

The development gives regulators and bankers breathing room to address strains on the US financial system that arose after the collapse of SVB, the go-to bank for venture capital investors and their companies. The implosion occurred at breakneck speed this month, turbocharged by social media and easy online banking, in an event that is likely to affect 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 freeze all customers of the two banks. Ripples from this event reached the world, and a week later, Swiss regulators forced a long-rumored merger between UBS and Credit Suisse to boost confidence in European banks.

The dynamic has put large banks such as JPMorgan and Goldman Sachs in the difficult position of playing multiple roles simultaneously in this crisis. Big banks are advising smaller banks as they take steps to restore confidence in the system and prop up ailing lenders like First Republic, while earning billions of dollars in deposits and being able to bid on assets when they come up for sale.

The broad spectrum of these money flows is evident in Federal Reserve data released Friday, a delayed snapshot of deposits as of March 15. While large banks appeared to receive deposits at the expense of smaller ones, the records do not capture outflows from SVB because it was in the same large bank category as the companies that received their dollars.

Although inflows to a top institution have slowed to a “pip”, the situation is fluid and subject to change if concerns about other banks arise, said one person, who declined to be identified ahead of the release of financial figures next month. JPMorgan kicks off bank earnings season on April 14.

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

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

“Things have definitely calmed down,” Dubugras told CNBC in a phone interview. “There has been a lot of in and out, 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 with regional banks or new players like Brex, while parking the rest with one of the four biggest players. This approach combines the service and features of smaller lenders with the perceived safety of too-big-to-fail banks for most of their money, he said.

“A lot of founders opened an account at a Big Four bank, moved a lot of money there, and now they remember why they didn’t do it in the first place,” he said. Historically, the largest banks have not taken into account risky startups, which were the domain of specialist lenders such as SVB.

Dubugras said JPMorgan, the largest U.S. bank by assets, was the single largest earner of deposits among lenders this month, in part because VCs have flocked to the bank. This belief has been supported by anecdotal reports.

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

Regulators and banks have already put together a remarkable array of measures to try to save the bank, mostly as a kind of firewall against another round of panic that will swallow up more lenders and strain the financial system. Behind the scenes, regulators believe the deposit situation at First Republic has stabilized, Bloomberg reported Saturday.

First Republic has hired JPMorgan and Lazard as advisers to come up with 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 they fail, there is a risk that regulators will have to seize the bank, similar to what happened to SVB and Signature, they said.

While the flight of deposits from smaller banks has slowed, recent weeks have exposed a glaring weakness in how some have managed their balance sheets. These companies were caught flat-footed when the Fed engaged in its most aggressive rate-raising campaign in decades, leaving them with unrealized losses on bond holdings. Bond prices fall when interest rates rise.

Other institutions are likely to face upheaval in the coming weeks, Citigroup CEO Jane Fraser said in an interview Wednesday.

“There may well be some smaller institutions that have similar problems in terms of being caught not managing balance sheets as skillfully as others,” Fraser said. “We certainly hope there will be fewer rather than more.”



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