Big Depositors’ Role in Bank Failures
According to a recent report by the Federal Deposit Insurance Corp. (FDIC), big depositors were more likely to withdraw their funds before three major banks failed in early 2023. The study, titled “Dissecting Depositor Flight: An Analysis of the Spring 2023 Bank Failures,” revealed that depositors with substantial uninsured funds were much more inclined to run compared to those with fully insured deposits of $250,000 or under.
Key Findings of the Report
Transaction-level data collected from Silicon Valley Bank, Signature Bank, and First Republic Bank showed that the largest depositors at these institutions were significantly more likely to withdraw their funds, including from business accounts. The threshold for top depositors varied, ranging from $6 million at First Republic to $16 million at Signature Bank to $49 million at SVB.
Uninsured deposits constituted the majority of funds at these banks, with approximately three-quarters of all deposits at First Republic and Signature, and 94% at SVB being uninsured. Furthermore, the report highlighted that these banks had concentrated deposits among a small number of depositors, with the top depositors holding a significant percentage of total deposits.
Regulatory Insights
FDIC Chair Travis Hill emphasized the need for regulators to develop a deeper understanding of deposit behavior in light of the study’s findings. He stated that the report provides a detailed account of deposit flows during rapid bank runs, shedding light on the dynamics of such events in the current banking landscape.
The majority of runs at the three banks occurred between March 9 and March 14, with significant losses in deposits. SVB lost 50% of its deposits, while Signature and First Republic lost 50% and 47% of their respective deposits. The report also noted that a high percentage of top depositors at these banks participated in the runs, further exacerbating the situation.
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