US banking giants urge employees not to aggravate the situation with smaller banks
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Several US lenders have faced a financial crisis triggered by increased customer withdrawals. The situation was triggered by the collapse of Silicon Valley Bank and Signature Bank earlier this month. The situation triggered weakness in some of the small regional banks in the country, but large banks are now stepping in to mitigate the crisis.
Large US banks warn employees of poaching clients
Some of the largest banks in the US, such as Bank of America, Citigroup, and JPMorgan Chase, have warned employees about the banking industry’s current situation, urging them not to make the matter worse.
JPMorgan Chase is the largest bank in the United States, and it informed all employees that they should not exploit a situation caused by stress or uncertainty. The banks issued a memo on March 13, when the fear around the banking system was at its peak. The memo read that “We do not make disparaging comments regarding competitors.”
The head of JPMorgan’s consumer and business banking division also informed branch employees that they should refrain from soliciting client business from institutions that are under stress.
On the other hand, Citigroup issued a similar statement to the heads of different divisions. The guidance included these executives not making speculative moves against other banks or triggering market rumors. Citigroup also issued a memo urging bankers not to discuss with customers the conditions of the other banks.
On the other hand, Bank of America told its employees that they should not try to poach customers from the distressed banks or make moves that could aggravate the situation. The CEO of consumer and small business banking at Wells Fargo, Mary Mack, also sent a memo to staff urging them to refrain from participating in activities that could be seen as taking advantage of a situation that was bad for others.
Silicon Valley Bank and Signature Bank collapsed earlier this month, and they were the largest lenders to fail since the 2008 financial crisis. The situation led to customers transferring around half a trillion dollars worth of deposits from vulnerable US banks to larger institutions.
Banks and regulators work to avoid contagion
As SVB showed signs of collapse, billions of dollars worth of deposits were transferred from smaller banks to larger institutions. Regulators usually require large banking firms to hold a large amount of capital that can withstand shocks in the broader financial sector.
Despite lenders usually being competitive in attracting more customers and a large number of deposits, the recent situation led to them working together to avert a larger crisis. First Republic Bank suffered the most damage after the collapse of SVB and Signature banks, and 11 of the largest US banks poured $30 billion in support for the bank to prevent a crisis.
US regulators also stepped in to guarantee the deposits of Signature Bank and SVB. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell, and the CEO of Citigroup have issued statements to reassure investors of the stability of the US banking industry.
