Deposits at small US banks dropped by a record amount following the collapse of Silicon Valley Bank on March 10, data released on Friday (Mar 24) by the Federal Reserve showed.

Deposits at small banks fell US$119 billion to US$5.46 trillion in the week ended March 15. That was more than twice the previous record drop and the biggest decline as a per cent of overall deposits since the week ended March 16, 2007.

Borrowings at small banks, defined as all but the biggest 25 commercial US banks, increased by US$253 billion to a record US$669.6 billion, the Fed’s weekly data showed.

“As a result, small banks had US$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 swift and massive run by depositors who took out tens of billions of dollars in a matter of hours.

Deposits at large US banks rose US$67 billion in the week to US$10.74 trillion, the Fed data showed.

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Overall US bank deposits have been in decline after sharply rising in the wake of pandemic aid in 2020 and early 2021.

The reversal in the trend for large banks was notable. The rise equates to about half as much as the deposit decline at small banks, suggesting that some of the cash may have gone into money market funds or other instruments.

Large banks also increased borrowings in the week, by US$251 billion.

It was unclear if the shift in deposits out of small banks will persist.

“Deposit flows in the banking system have stabilized over the last week,” Fed Chair Jerome Powell said on Wednesday. REUTERS