• Massive outflows of funds from small and regional banks after bank earthquakes
• Too big to fail banks as beneficiaries
• Not only portfolio, but also banks diversify
In the second week of March there was a bank tremor in the USA, which also caused turbulence on the international markets. The crypto-friendly financial service provider Silvergate Capital initially got into difficulties due to the ongoing crypto slump and shortly thereafter announced the voluntary liquidation. A short time later, the financial company SVB Financial, to which Silicon Valley Bank belongs, also got into trouble, which startled numerous investors. The Silicon Valley Bank specializes in the financing of small and medium-sized tech start-ups and suffered particularly from the rising key interest rates due to its focus on this rather risky sector. In order to protect itself, the financial institution relied in particular on investments in US government bonds, which in the course of the tightening monetary policy but also lost value.
When SVB realized that its own reserves were threatening to run out, the bank had to sell its bonds at large losses. The attempt to get the necessary money through an emergency capital increase also failed, which caused panic among depositors. Numerous depositors withdrew their money, putting additional pressure on the financial institution, which ultimately forced the authorities to step in and put SVB under state control. In a joint statement, the US government, the US Federal Reserve and the US deposit insurance company FDIC finally announced that customer deposits would also be protected beyond the FDIC-protected amount of US$ 250,000. The same applies to New York’s Signature Bank, which has also come under pressure as a result of the crisis.
Depositors flee to too-big-to-fail banks
Despite the calming pills from the authorities, many depositors did not hesitate to withdraw their money from the affected small and regional banks and beyond, and instead looked to banks that are generally considered “too big to fail”. According to the Gabler Banklexikon, market participants are said to be “too big to fail” if “their insolvency would have such serious negative effects on the economy as a whole that their failure – especially through state intervention – can be prevented.”
Unsurprisingly, the crisis at SVB and Co. flushed a lot of money into the coffers of these financial houses. Michael Imerman from the University of California Irvine’s Business School comments to Bloomberg: “The top six banks in the USA are and were too big to fail, as the financial crisis ten years ago proved. It is therefore safer to go for a name with a maintain a higher level of security”.
JPMorgan, Citigroup, Wells Fargo & Co. benefit from SVP bankruptcy
The banks keep a low profile about how much money actually ended up with the big financial institutions. According to Bloomberg, citing people familiar with the matter, JPMorgan, Citigroup, Wells Fargo, BofA & Co all saw billions of dollars in inflows in the days following the banking crisis. As Fortune writes with reference to Bloomberg, sources at Bank of America have spoken of cash inflows of 15 billion US dollars. The Citizens Financial Group also told the news agency that it had “received more interest than usual from possible new customers in the last few days”.
As the Financial Times reports, JPMorgan would facilitate the flow of new customers by reducing the waiting time for account openings. Also, the bank would increase speed for new corporate customers until they can access their funds. Citigroup also does not want to let the numerous customers who are looking for a large bank pass them by. As the FT writes, the private bank of Citigroup, which specializes in wealthy individual customers, would now try to open an account on the same day. Normally, the process between applying for an account and opening it takes one to two weeks.
Nevertheless, the big banks want to avoid being accused of taking advantage of the plight of the small and regional banks. However, Wells Fargo analyst Mike Mayo only commented on the situation in a report available to the FT with “Goliath wins” and wants to have identified JPMorgan in particular as a big winner “in these uncertain times”.
As a private banker from a large company told the Financial Times, many customers have also noticed from the recent crisis that it is worthwhile not only to make diversified investments, but also to spread your money across several banks: “Customers say . ..’I’ve learned my lesson, I’m not only diversifying my portfolio, I want to diversify my bank too'”.
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