Regulators closed SVB and Signature Bank earlier this month, marking the second and third largest failures in U.S. banking history, respectively.
The speed at which customers withdrew their money from the two banks sparked concern of bank runs spreading to other institutions, prompting U.S. authorities to backstop their deposits. The failures amplified worries among customers who rushed to move their money to bigger banks that were perceived to be safer and hold a greater share of insured deposits.
Of the $17 trillion of total U.S. bank deposits, nearly $7 trillion are not insured by the Federal Deposit Insurance Corp (FDIC), the JPMorgan analysts wrote.
"Fed rate hikes have been inducing a deposit shift via another channel: via creating losses in banks’ bond portfolios which in turn made depositors less comfortable with keeping uninsured deposits in banks with large unrealized losses on their bond holdings," they wrote.
A government guarantee on deposits could help stem the outflows from small and regional lenders, Panigirtzoglou wrote.
But that possibility appeared less likely after U.S.
Treasury Secretary Janet Yellen said on Wednesday that she was
not considering such a proposal, which would require
congressional approval. Bank risks were being reviewed on a
case-by-case basis, she said.
Rising U.S. interest rates, and banks' sluggish moves to
raise the rates they pay depositors, have also contributed to
the outflows in the last year, the JPMorgan analysts said.
Out of the $1 trillion in deposits that were pulled out of
the most vulnerable U.S. lenders, half went to government money
market funds, while the other half landed at larger U.S. banks,
the analysts wrote.
(Reporting by Nupur Anand; Editing by Lananh Nguyen and
Alexander Smith)
