Small U.S. banks see record drop in deposits after SVB collapse

NEW YORK CITY, New York: Deposits at small U.S. banks throughout the country dropped the most since 2007 after the March 10 closing of Silicon Valley Bank, according to figures released by the US Federal Reserve Bank.

For the week ending March 15, deposits at small banks fell $119 billion to $5.46 trillion. Officials said there has not been such a large decline in deposits at small banks since the week ending March 16, 2007.

However, lending at small banks increased this week by $253 billion to a record $669.6 billion, according to the Federal Reserve Bank.

"As a result, small banks had $97 billion more in cash on hand at the end of the week, suggesting that some of the borrowing was to build war chests as a precautionary measure in case depositors asked to redeem their money," Capital Economics' analyst Paul Ashworth wrote.

SVB collapsed after it was unable to meet a massive run by depositors who took out tens of billions of dollars in only a few hours.

Officials have noted that since early 2021, U.S. bank deposits have been in decline, after sharply rising in the wake of pandemic aid. It is believed that much private money has gone into money market funds or other instruments.

Officials also said they did not know whether the shift in deposits out of small banks would continue.

"Deposit flows in the banking system have stabilized over the last week," Fed Chair Jerome Powell said this week.