In the aftermath of the Silicon Valley Bank (SVB) collapse, anxious Americans are moving hundreds of trillions of won in deposits from small and medium-sized banks to safer or higher-yield financial institutions.
According to JP Morgan, the largest bank in the United States, $550 billion (approximately 716 trillion won) has shifted from small regional banks to large banks and money market funds (MMFs) over the past two weeks, reported the Washington Post (WP) on the 24th (local time).
The Investment Company Institute (ICI) estimated that nearly $240 billion flowed into MMFs, a type of mutual fund that primarily invests in low-risk securities, during the two weeks following the SVB collapse.
As more people sought safe assets, the yield on the 2-year U.S. Treasury note dropped by 20%. With a large amount of funds moving simultaneously, investments in riskier assets also increased. The price of Bitcoin rose by 40%.
In a poll conducted by Yahoo News and YouGov on the 21st, 12% of Americans said they withdrew money from banks due to the SVB incident, and 18% said they considered doing so.
WP analyzed that since the Federal Reserve (Fed) began raising interest rates a year ago, Americans have started moving funds from regular bank accounts that pay almost no interest to other higher-yield investments, and this trend has been reinforced by the recent SVB incident.
Although regulators quickly intervened to prevent large-scale withdrawals from other banks, concerns about the overall banking system remain.
PacWest Bancorp, a regional bank in California, announced a 20% drop in deposits this year, causing its stock price to fall by 17%, and despite large banks injecting $30 billion into First Republic Bank, customers withdrew $70 billion, equivalent to 40% of the bank’s total deposits.
A decrease in deposits at small and medium-sized banks leads to a reduction in loan volumes and an increase in banks’ funding costs, which in turn raises loan interest rates, negatively impacting the overall economy.
In response, the government is focusing on calming fears about the financial system.
Federal Reserve Chair Jerome Powell said at a press conference on the 22nd, "All depositors’ money is safe, and the banking system is safe."
On the 22nd, Treasury Secretary Janet Yellen said she was not considering comprehensive insurance to protect all bank deposits, but after market unrest, she emphasized the next day that "we are prepared to take additional actions if necessary."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
