The U.S. economic portal ‘Yahoo Finance’ reported on the 31st of last month (local time) that there are signs of a general bank run (large-scale deposit withdrawal) in the United States.
In the week ended March 22, US depositors withdrew a total of $126 billion from the country’s largest banks, according to data from the Federal Reserve, the country’s central bank.
As a result, total deposits at US banks fell 4.4% year-on-year to $17.3 trillion. This is the lowest level since July 2021.
Earlier last month, when Silicon Valley Bank (SVB) went bankrupt due to the government’s order to suspend its operations, the deposits of large banks rather increased. This is because depositors took their deposits out of risky small banks and moved them to relatively safe large banks.
However, it seems that depositors feeling anxious about the financial crisis are withdrawing their deposits from large banks as well.
In the beginning of the pandemic, when the US implemented a low interest rate policy, banks were overflowing with deposits. But when the Fed started raising interest rates, deposits began to decline.
This is because depositors are looking for places where they can generate higher returns. Part of the money is flowing into money market funds (MMF). As a result, the decline in deposits began to occur in the second quarter of 2022.
The problem with deposit outflows is that banks raise deposit rates to retain customers. As a result, the bank’s profitability declines. This can lead to bank failures.
Recently, the US stock market has rallied on expectations of an end to the financial crisis. On this day, the three major indices on the New York Stock Exchange soared more than 1% at the same time. The Dow rose 1.26%, the S&P500 rose 1.44%, and the Nasdaq rose 1.74%.
As a result, during the first quarter, the Dow rose 1.89%, the S&P 500 rose 7.03%, and the Nasdaq rose 16.77%, respectively. Nasdaq, in particular, had its best quarter since 2020.
However, Yahoo Finance pointed out that the US financial crisis is not over as deposits are being withdrawn from banks on a large scale.
Source: Donga