According to new data from the Federal Reserve, bank customers recently pulled nearly $100 billion in deposits, with small banks being hit the hardest. While large institutions saw an increase in deposits, smaller banks saw outflows of $120 billion.
The withdrawals came during a period of sudden failures of Silicon Valley Bank and Signature Bank, which rocked the industry. The total deposits now stand at just over $17.5 trillion, down $582.4 billion since February 2022, according to seasonally adjusted Fed data.
Despite these withdrawals, regulators have assured the public that the US banking system remains safe and resilient. Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell, along with more than a dozen other officials, convened a special closed meeting of the Financial Stability Oversight Council on Friday to discuss current conditions in the banking sector.
A readout from the meeting indicated that a New York Fed staff member briefed the group on “market developments,” and the Council discussed ongoing efforts at member agencies to monitor financial developments. While some institutions have come under stress, the Council emphasized that the US banking system remains sound.
It’s unclear why customers are withdrawing deposits, but it could be related to concerns about the stability of smaller banks. In any case, these withdrawals are significant, and it’s important for regulators to closely monitor the situation and ensure the safety and stability of the banking system.
The recent withdrawals of up to $100 billion in deposits from the US banking system, especially from small banks, is a cause for concern. However, regulators have assured the public that the system is safe and resilient, and they are closely monitoring the situation.
Money market funds have seen assets rise over the past two weeks, up $238 billion to $5.13 trillion, according to Investment Company Institute data through March 22. While this increase in assets may be seen as a positive sign for the financial industry, it comes amid concerns about recent withdrawals from the banking system.
Despite these concerns, Federal Reserve Chairman Jerome Powell sought to assure the public that the banking system is safe. During a news conference that followed the Fed’s decision to hike benchmark interest rates another quarter percentage point, Powell said, “You’ve seen that we have the tools to protect depositors when there’s a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools.”
Powell also noted that deposit flows “have stabilized over the past week” following what he called “powerful actions” from the Fed to backstop the system. Banks have been flocking to emergency lending facilities set up after the failures of Silicon Valley Bank and Signature Bank. Data released on Thursday showed that institutions took a daily average of $116.1 billion of loans from the central bank’s discount window, the highest since the financial crisis, and have taken out $53.7 billion from the Bank Term Funding Program.
While the recent withdrawals from the banking system are a cause for concern, the growth of money market funds may suggest that investors are shifting their assets to these funds as an alternative to traditional banking products. However, it’s important to remember that money market funds are not risk-free and can still experience fluctuations in value.
In conclusion, while recent data shows an increase in assets for money market funds, concerns remain about withdrawals from the banking system. Federal Reserve Chairman Jerome Powell has reassured the public that the banking system is safe and that the Fed has tools to protect depositors. As the situation continues to evolve, it’s important for regulators to monitor the situation closely to ensure the stability of the financial system.