Panicked after Silicon Valley Bank collapsed in early March, some small and medium-sized businesses snatched their money from regional banks and deposited it with the largest, seeking the safety of their gargantuan balance sheets and the government’s implicit backstop from oversized lenders. to fail.
Regulators, bank executives and industry representatives have been desperately trying to convince those depositors to stop.
On Tuesday, Treasury Secretary Janet L. Yellen expressed confidence in the country’s banks and suggested that the government intervene if necessary to protect smaller banks. Shares of many regional banks rose after her comments.
Last week Tim Mayopoulos, the new CEO of Silicon Valley Bank, begged customers to leave or return their deposits with the bank. And some lawmakers in Washington are, too trying to raise the limit on federal deposit insurance above $250,000 so businesses don’t have to worry about losing their uninsured money if their bank goes bust.
But the fear persists.
More than 90 clients of Kruze Consulting, an accounting firm that specializes in startups, have switched banks in recent weeks — and half went to JPMorgan Chase, said Scott Orn, the company’s chief operating officer.
“As things started to get creepier and share prices of the regional banks started to take a hit, it became clear that the only place where you are completely safe is the banks that are too big to fail,” said Mr. . Orn. “It is the prisoner’s dilemma what everyone is talking about.”
Those concerns are at odds with optimistic reports from regulators and bankers that the crisis may be abating, underscoring the uncertainty that continues to weigh on the banking system.
Eric Peters, the founder of One River Asset Management in Greenwich, Conn., wrote Monday of his decision to transfer some of his investment consulting firm’s money from a bank in Santa Barbara, California, to a giant too big to fail.
“We are exposed to our commercial bank credit risk, but we are not compensated for it in any way,” said Mr. Peters in an interview. “As a rule, I don’t like taking a lot of risk and not getting paid for it.”
None of the Big Four banks — Bank of America, Citibank, JPMorgan and Wells Fargo — have publicly commented on how much new money has been pouring into their treasuries, but bank officials familiar with their operations acknowledged that they are a part of the deposits had been obtained by Silicon Valley Bank and other regional banks.
Those shifts are hard to track in real time; banks disclose their deposits and assets in quarterly filings. Some, however, have clearly bleed: In a Monday note, analysts from Morgan Stanley estimated that First Republic, a San Francisco lender, lost $86 billion in deposits between the collapse of Silicon Valley Bank, or about 72 percent of its total uninsured deposits. last Wednesday. (At the end of last week, 11 of the country’s largest banks said they would lend First Republic $30 billion.)
Executives of small and regional banks — generally considered those with assets of around $50 billion — seemed divided over the toll the crisis has taken on their finances.
In Washington on Tuesday, those at a previously scheduled meeting of the largest banking lobby group, the American Bankers Association, tried to demonstrate that the panic was abating.
“The market is calming down,” said A. Scott Anderson, the CEO of Utah-based Zions Bank, which has $90 billion in assets.
Mr. Anderson and three CEOs of smaller banks, who appeared together on a panel in a session called “The View From Main Street,” each said they did not see deposits taken from their banks.
But one member of the public — the CEO of a bank with about $60 billion in assets — described an outflow of deposits, drawn largely by nonprofits and companies too small to have a full-time chief financial officer.
The person, who did not want to be identified because naming the bank could trigger more withdrawals, helped draft a letter that Brent Tjarks, a lobbyist for medium-sized banks, sent to regulators on Friday. looking for unlimited deposit insurance for all banks.
The person said the main purpose of the letter was to level the playing field. The “too big to fail” label had suddenly made the largest banks attractive destinations for smaller companies’ funds, while some savers now view medium-sized banks as too risky to trust, the person said.
Last week Mr. Mayopoulos sent Silicon Valley Bank clients a note: “If you, your portfolio companies, or your company have moved money in the past week, consider moving some of it back as part of a safe deposit diversification strategy.” He added that the bank is “actively opening new accounts of all sizes and making new loans”.
However, other bankers said they did not see widespread fear from customers.
Camden Fine, a former president of the Independent Community Bankers of America, said that after Silicon Valley Bank failed, he started calling bankers he knew to check in.
“I’ve probably talked to at least three dozen community bank CEOs from all over the country, probably banks ranging from $500 million in assets to $10 billion in assets,” said Mr. Fine. “Without exception, they all said, ‘We are seeing an influx of deposits in our banks. We actually get deposits.” They were baffled by all this talk of deposits fleeing smaller and regional banks and going to the mega banks.”
To ensure that cash is at risk of leaving, some bankers are steering customers towards products that reduce their unprotected deposits. A popular option is often referred to as an “insured cash sweep” – a service that breaks up large deposits into chunks and pays them out to multiple banks.
Nearly 3,000 financial institutions, mostly community and regional banks, participate in a network operated by IntraFi Network, a company based in Arlington, Virginia. Founded 20 years ago, IntraFi has a service that allows banks to trade “mutual deposits.” For example, a customer can deposit $10 million with a local bank, which can then use the IntraFi network to distribute the deposit to other institutions in amounts under $250,000. That ensures that the money is fully backed by the Federal Deposit Insurance Corporation guarantee.
Jill Castilla, the chief executive of Citizens Bank of Edmond, a small community lender in Oklahoma, promotes IntraFi to her clients as a way to keep their money local and support their community. That has helped calm nerves over the past few days, she said.
“We’re talking about this option with every major saver,” Ms. Castilla said. “It’s a very easy network to access, it costs them nothing and it gives them more security.”
Pacific West Bank, one of the regional banks whose stock has been hammered, dangled IntraFi’s service Tuesday as a bait for nervous customers. “Looking for a new banking partner? We are a one-stop solution,” said the bank posted on Twitterpromoting its ability to use the service to protect deposits of up to $125 million.
Since March 13, IntraFi’s transaction volume is up 15 percent, said Mark Jacobsen, the company’s CEO and founder. The typical deposit through the network is $3.1 million.
Some customers try to strike a balance between the desire to keep their money safe and their loyalty to banks that they want to stay in business. Maya Mikhailov, the founder of Savvi AI, a venture-backed technology startup in Chicago, is sticking with First Republic as her company’s primary bank — though she recently transferred more money into an account at UBS, the giant Swiss bank.
“We are not going to be naive – we are going to diversify because it is our duty as leaders to keep the company solvent and operational – but we have not fled all our money to another bank,” Ms Mikhailov said. “Regional banks are vital to businesses and it deprives the market of choice if these banks are put under pressure.”
Ms. Mikhailov said the current crisis felt like déjà vu: She created her first start-up, a developer of mobile shopping technology, in 2007, just as the mortgage crisis catalyzed the Great Recession.
“That really opened our eyes to the way these things can happen to anyone, anywhere, quite suddenly,” she said. “I think the fear and panic that is now rampant in the market is very unfortunate because it builds on itself.”
Mr. Orn of Kruze Consulting said it would take at least another few weeks to know where the customers ended up. Some open accounts with large banks as a precaution, but may eventually migrate to a small, more business-friendly bank for their ongoing needs, he said.
But some businesses burned by recent explosions simply move into the biggest fortress they can find. On Monday, customers of Smartsheet, a business collaboration software maker with annual revenues of just over $750 million, received a note directing them to stop making payments to the company’s account at Silicon Valley Bank.
Smartsheet had “migrated its banking relationship,” the note said, and would now be doing business with Bank of America.
Emily Flasher reporting contributed.