JP Morgan: “Weakest” US banks lost $1 trillion in deposits over ‎a year

Analysts at JPMorgan Chase & Co said the “weakest” U.S. banks have probably lost a total of nearly $1 trillion in deposits since last year, and that half of the outflows occurred in March after the collapse of Silicon Valley.

The JPMorgan team of analysts, led by Nikolaos Panegirtz Oglu, did not specify which banks they included in the “weakest” category, nor the number of banks in this category, according to Reuters.

“The uncertainty generated by deposit movements may make banks more cautious in lending,” they wrote.

“These risks are exacerbated by the fact that small and medium-sized banks play a disproportionately large role in US bank lending,” they added in a note dated March 22.

Regulators shut down Silicon Valley and Signature banks earlier this month, marking the second and third largest bank failures in US banking history.

The speed with which customers withdrew their money from the two banks raised fears that withdrawals from banks would extend to other institutions, prompting the US authorities to secure their deposits.

The failures compounded the fears of customers, who rushed to transfer their money to larger banks that are considered safer and have a larger share of insured deposits.

JPMorgan analysts wrote that of the $17 trillion in total US bank deposits, about seven trillion are uninsured by the Federal Deposit Insurance Corporation.

They added, “The federal increases in interest rates led to a shift in deposits to another channel by creating losses in bank bond portfolios, which made depositors less comfortable with keeping uninsured deposits in banks that record large unrealized losses in their bonds.”

Panegirtzoglu wrote that a state deposit guarantee could help stop the flight of money from small and regional banks.

But this possibility seems less likely after US Treasury Secretary Janet Yellen said on Wednesday that she is not considering such a proposal, which would require congressional approval. She added that the bank’s risk review is conducted on a case-by-case basis

JPMorgan analysts said that rising interest rates in the United States and slow moves by banks to raise the interest rates they pay to depositors also contributed to the withdrawal of funds last year.

Analysts wrote that of the trillion dollars in deposits that were withdrawn from the weaker US banks, half went to government money market funds, while the other half went to the largest US banks.