Deposit drain from small banks to JPM, WFC and C has slowed

CNBC has learned that the wave of deposits moving from small banks to large institutions including JPMorgan Chase and Wells Fargo amid concerns about the stability of regional lenders has slowed considerably in recent days.

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

A situation that destabilized markets globally and forced US regulators to intervene To protect bank customers, the upturn started around March 16, according to people familiar with flows at senior institutions. That’s when 11 of America’s largest banks got together to pour $30 billion into First Republic, essentially giving back some of the deposits they had recently acquired.

“People who panicked immediately got out,” the person said. “If you haven’t made up your mind yet, you’ll probably stay where you are.”

This development gives regulators and bankers a breathing space to address the stresses in the US financial system that emerged after the collapse of SVB, the bank of choice for venture capital investors and their firms. Its implosion occurred at breakneck speed this month, turbocharged by social media and the ease of online banking, in an event likely to affect the financial world for years to come.

Within days of its March 10 confiscation, Signature Bank, another specialist bank, was shut down, and regulators took advantage of emergency powers to support all clients of both banks. Waves of the event reached all over the world, and a week later Swiss regulators forced a long-rumored merger between UBS and Credit Suisse to help boost confidence in European banks.

The dynamic has put major banks such as JPMorgan and Goldman Sachs in the awkward position of playing multiple roles simultaneously in this crisis. Big banks are advising smaller banks while participating in steps to restore confidence in the system and support distressed lenders like First Republic, all while racking up billions of dollars in deposits and in a position to outbid on assets when they are put up for sale.

The sweeping sweep of these financial flows is evident at the Federal Reserve data Released on Friday, it is a deferred deposit shot from March 15th. While it appears that large banks are earning deposits at the expense of smaller banks, the deposits do not capture the outflows from the SVB because they were in the same class as the large banks as the companies that gained their dollars.

Although flows to one major institution have slowed to a “negligible” extent, the situation is fluid and could change if concerns arise about other banks, said the person, speaking on condition of anonymity, speaking ahead of the release of financial numbers next month. JPMorgan will kick off the bank earnings season on April 14th.

At another big bank, this one on the West Coast, inflows have only slowed in recent days, according to another person familiar with the matter.

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

The movements mirror what a new player saw, too, according to Brex co-founder Henrique Dubugras. His startup, which caters to venture capital-backed growth companies, saw a surge in deposits and new accounts after the collapse of SVB.

“Things have definitely calmed down,” DuPoughras told CNBC in a phone interview. “There have been a lot of ins and outs, but people are still pouring money into the big banks.”

The post-SVB playbook, he said, is for start-ups to keep three to six months of cash in regional banks or newcomers like Brex, while putting the rest into one of the four big players. This approach combines the service and features of smaller lenders with the perceived safety of too-big-to-fail banks for the bulk of their money, he said.

“A lot of founders opened an account at one of the big four banks, 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 weren’t interested in risky startups, which was the domain of specialist lenders like SVB.

DuBograss said JPMorgan, the largest US bank by assets, was the single biggest deposit gainer among lenders this month, in part because of the influx of investment capital into the bank. This belief has been supported by anecdotal evidence reports.

For now, attention has turned to First Republic, which has been declining in recent weeks and whose shares have lost 90% this month. The bank is well known for its success in catering to affluent clients on the east and west coasts.

Regulators and banks have already put in place an impressive series of measures to try to save the bank, mostly as a kind of firewall against another round of panic that would engulf more lenders and overwhelm the financial system. Behind the scenes, the organizers believe that the placement of deposits in the First Republic has taken place settle downBloomberg reported Saturday.

First Republic has hired JPMorgan and Lazard as advisers to come up with a solution, which could include finding more capital to stay independent or selling to a more stable bank, people familiar with the matter said.

If that fails, they said, there is a risk that regulators will be forced to take over the bank, similar to what happened to SVB and Signature. A republican spokesman declined to comment.

While the flight of deposits from smaller banks has slowed, the past few weeks have revealed a stark weakness in how some manage their balance sheets. These companies have been caught in a stalemate as the Fed engaged in its most aggressive campaign to raise interest rates in decades, leaving them with unrealized losses on bond holdings. Bond prices fall as interest rates rise.

Other institutions are likely to experience disruptions in the coming weeks, said Jane Fraser, CEO of Citigroup interview Wednesday.

“There could be some smaller organizations that have similar issues of control without managing their budgets as adeptly as others,” Fraser said. “We certainly hope there will be fewer, not more.”