There were fears banking sector weakness might touch off a wave of mergers that would wipe out smaller institutions - to the potential detriment, for example, of small business lending. But even banks up to $100 billion in size "were relatively unaffected," with the smallest institutions seeing virtually no change in deposits after the events of mid-March. Smaller firms tend to have higher levels of their deposits insured by the Federal Deposit Insurance Corp. The high level of uninsured deposits at SVB was a factor in its collapse. The report's release coincided with the FDIC announcing on Thursday its plan for replenishing its deposit insurance fund, which absorbed at least $16 billion of losses from the recent failures. The FDIC plans to focus most of the replenishment assessment on banks with $50 billion or more in assets, while those with fewer than $5 billion of assets would pay nothing. The NY Fed study is the latest effort to understand the impact of recent bank failures, and more broadly how Federal Reserve interest rate increases since March, 2022, have reshaped the financial landscape. According to the study, roughly $950 billion in deposits left the banking system in the year before SVB failed, as customers sought better returns in the rising interest rate environment, with the outflow spread proportionately across all banks. But what seemed to be crisis-like dynamics in mid-March turned out to involve a nearly dollar for dollar shuffle of money from the super-regional banks to even larger institutions. Concern about the stability of regional banks continues, with First Republic Bank taken into FDIC receivership and sold to JPMorgan this month. Evidence of a festering crisis, however, seems to have diminished. Emergency borrowing from Fed facilities has declined, and the study concludes that much of it was "precautionary."
Super-regional banks borrowed the most, but banks of all
sizes tapped Fed and other facilities, which "suggests demand
for precautionary liquidity buffers across the banking system,
not just among the most affected institutions."
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The rush from "super-regionals" INTERACTIVE-The rush from "super-regionals" Bank tremors and SVB INTERACTIVE-Bank tremors and SVB ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Howard Schneider
Editing by Toby Chopra, Christina Fincher and Frances Kerry)
