The failure of three U.S. banks in early 2023 came as they faced a rapid loss of deposits, led by the largest depositors and customers with uninsured deposits, according to a new study by the U.S. Federal Deposit Insurance Corporation (FDIC).
The agency released the results of an analysis of the deposit flows that accompanied the failure of Silicon Valley Bank, Signature Bank and First Republic Bank — finding that all three faced outflows that were unprecedented in terms of both their size and speed, before they ultimately failed.
“In just three business days, SVB and SBNY lost half of their deposits while FRB lost just under half of its deposits,” it noted — adding that the outflows at each bank “dwarfed deposit outflows from large bank runs in the past…”
Among other things, the study also found that “depositors with substantial uninsured funds were far more likely to run while fully insured retail depositors generally did not run prior to the banks’ failures.”
However, outflows continued even after regulators provided full deposit coverage at two of the banks to guard against systemic risk.
“The extension of full deposit insurance coverage may have prevented even greater deposit outflows, but the continued runs suggest that other factors, such as depositor uncertainty about how and when SVB and SBNY would exit the bridge banks, impacted depositor behaviour,” it said.
The study also noted that the largest depositors at all three banks “were significantly more likely to run than other uninsured depositors, withdrawing all or nearly all their deposits across their accounts,” it said.