US deposit outflows ease as confidence in the banking system slowly resumes
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A US government official has said that the deposit outflows leaving most regional banks over the past two weeks have since slowed down. A large number of deposit outflows was witnessed after the collapse of Silicon Valley Bank, which raised concern about the stability of smaller banks.
US banks now see stable deposits
The shares of some of the largest regional banks in the United States, such as First Republic Bank, PacWest Bancorp, and Western Alliance Bancorp, witnessed a notable drop following the collapse of SVB and Signature Bank. The shares plunged as investors lost confidence in smaller banks in the US.
According to a US official, deposits within the US banking system were stabilizing, and US banks had limited exposure to Credit Suisse Group AG. The Swiss lender is set to be acquired by UBS Group in a deal brokered by Swiss authorities.
Most regional banks in the US have announced that their deposit levels have stabilized. However, some of these banks, such as First Republic Bank and PacWest, seek to raise capital through private funding rounds, but these moves have not succeeded. Additionally, there are concerns about potential losses within investment portfolios and loan books.
Regional banks have been under pressure because they are not well-equipped to handle deposit withdrawals in the same manner as large banks. Most large banks have also agreed to deposit $30 billion in First Republic Bank.
Despite the efforts made by leading US banks, the S&P500 has downgraded the First Republic stock into “junk.” The index has also warned that the value of this stock could be downgraded further because of the effects caused by the large volume of deposit outflows.
First Republic Bank has also issued a statement that it was uniquely positioned to manage the short-term deposit activity. On Sunday, four lawmakers in the United States said they would consider imposing a higher federal insurance limit on bank deposits compared to the $250,000 limit needed to boost confidence in the sector.
US government makes efforts to restore confidence
Over the weekend, billionaire investor Warren Buffet held talks with senior officials in the United States about the ongoing banking crisis. Despite these talks, Buffet has not announced his support for the regional banks.
The Federal Deposit Insurance Corporation has also succeeded in returning the operations of Signature Bank to the private sector. New York Community Bancorp has announced it will buy loans, deposits, and the 40 branches that Signature Bank owns. New York Community will also purchase $12.9 billion of the total loan at a $2.7 billion discount.
According to the FDIC, the deal to purchase Signature Bank will cost around $2.5 billion to the Deposit Insurance Fund. This shows the government backstop needed to secure the deal. However, the FDIC was unsuccessful in a purchase deal for Silicon Valley Bank over the weekend, and it is still seeking new bids for parts of the bank.
